Nepal Stock News: How Much Units Ideal for Investing in BPCL’s upcoming FPO Opening from Monday!

Butwal Power Company Ltd., (BPCL)’s upcoming Further Public Offering (FPO) on Monday January 29th 2018 (Magh 15, 2074) has become the talk among the investing pioneers in Nepalese stock market. The company is issuing 40, 81,000 units share worth Rs 2.04 arba as FPO which will close on Friday February 19th 2018 (Magh 19, 2074). The 501 (per unit) rupees priced FPO (Rs 401 premium added to the par value of Rs 100) whose issue manager is NMB Capital Ltd. has been a major interest to most of the market players in the stock market. However, the question arises what is the optimum unit of shares to be applied by investors? Although BPCL has stated 10 units of shares as the minimum share units and 20,400 units as the maximum share units to be applied but is 10 units the optimum quantity for the upcoming FPO?

Given that the hydropower company has been floating 40,81,000 units share which is comparatively large in volume, therefore, it is likely that the number of applicants will also be high for the FPO. If we analyze the trend of past months of IPO/FPO issuance, we can draw that the applicants will be in the range of 1.5 lakhs to 2 lakhs for the upcoming FPO. For instance, several IPO/FPO issuances of companies such as Unnati Microfinance Bittiya Sanstha Limited (UNNATI), Radhi Bidhut Company Limited (RADHIB), Support Microfinance (SUPPORT), Nepal Hydro Developer Limited (NHDL), Himalayan Power Partner Limited (HPPL), Premier Insurance Company Limited (PIC) and Nepal Grameen Bikas Bank Limited (NGBBL) had total number of applicants above 1 lakh 50 thousand and below 3 lakhs. The details of which are attached below:

Nepalese investors often measure their financial worth based upon the relative positioning of other investors. It is usually found that most of the investors are often disappointed with non-allotment of shares once the result of allotment has been announced. With new amended SEBON’s guideline to allocate at least 10 units of shares to all the valid applicants, investors particularly small, have gained confidence in their IPO/FPO investment, yet, they keep struggling to find the ideal quantity for investment.

What would be the ideal units to be applied?

Now that the mentioned companies which had floated more than 1 lakh units of shares as volume in last two months had applicants from 1.5 lakhs to 2 lakhs. In this context, we discard the other alternatives of 1 lakh, 2.5 lakh and 3 lakh applicants and assume that the company gets a total of 1.5 lakh to 2 lakh applicants for the FPO. Here, investors can take optimum benefit if they consider 20 to 30 units as the ideal units for investment. Hence, although the minimum units to be applied are only 10 units but it might be rational for investors to apply 20 to 30 units of shares. However, investors are urged to read the disclaimer before investing. Those investors who are interested in understanding the logic behind the ideal units can further refer to the following calculations.

Rationale behind the ideal units:

The following calculation assumes the number of applicants for the upcoming FPO and sorts the allotment of BPCL’s shares on the basis of these assumptions. The provided calculation might be difficult for readers to understand, therefore, the interpretation can be considered.

If 1 lakh valid applicants apply for BPCL’s FPO, then it is probable that 91,900 investors will gain 40 units of BPCL’s shares while 8,100 applicants will gain 50 units of the company’s shares.

Similarly, if 1.5 lakh valid applicants apply for the company’s shares, 1, 08,100 applicants will be allocated with 30 units and 41,900 applicants will be allotted with 20 units of BPCL’s shares.

On the other hand, if BPCL comes across 2 lakh valid applicants for its FPO, 20 units of shares will be allocated to 1,91,900 applicants while 30 units of shares will be allocated to 8,100 applicants. To illustrate the process, within the issued 40.81 lakh units, 2 lakh applicants will be distributed with 10 units in the first phase. In this phase, a total of 20 lakh (2 lakh *10) units will be distributed and 20 lakh 81 thousand units will be remained. In the second phase, the same 2 lakh applicants will be distributed with further 10 units of shares. Therefore, a total of 40 lakh units will be distributed till the second phase. The remaining 81000 units will be allocated among 8100 applicants with 10 units each.

Again, if 2.5 lakh applicants apply for BPCL’s FPO, 91,900 applicants will be offered 10 units of shares while 1, 58,100 applicants will be offered 20 units of BPCL’s shares.

Finally, considering the larger volume of issued units, if there are 3 lakhs applicants for BPCL’s FPO, 1,91,900 applicants will get hold of 10 units of shares while 1,08,100 applicants will get hold of 20 units.

Is BPCL worth the investment?

The projects undertaken by BPCL and its financial status show the competence of the hydropower company. BPCL has a number of projects such as Andhikhola Upgrading Project (9.4 MW), Kabeli ‘A’ Hydro Electric Project (37.6 MW), Khudi Hydropower Project (4 MW), Lower Manang Marsyangdi (100 MW) and Nyadi (30 MW) under development which sums up to more than 100 MW. The 51 years old company has an experience in the hydropower sector with several milestones attained in terms of commissioning Tinau Hydro Power Project (1 MW), Andhikhola Hydro Electric & Rural Electrification Project (5.1 MW), Jhimruk Hydro Electric and Rural Electrification project (12 MW), Khimti Hydropower Project (60 MW), Khudi hydropower project (4.2 MW), upgrading Andikhola Hydropower Project (9.4 MW) along with the implementation of Nyadi hydropower project (30 MW) and preparation of Manang Marsyangdi Project (100 MW).

BPCL aims to use the amount collected from the FPO to develop 37.6 MW Kabeli-A Hydropower Project and 30 MW Ngadi Hydropower project. BPCL has 54% stake in Kabeli Energy Limited and 97% stake in Ngadi Hydropower Project.

Similarly, the company also engaged in new joint venture in coordination with three major Chinese companies with shareholding structure of 20% by BPCL, 51% by Sichuan Investment Group Company Limited (SCIG), 17% by Chengdu Xingcheng Investment Group Company Limited (CXIG) and 12% of shares will be held by Qingyuan Engineering Consultant Company Limited (QYEC). This joint venture, named, International Nepal Hydro Joint Development Company Private Limited has an investment of Rs 1 arba 90 crore with the objective of generating 1000 MW of electricity. The initiation of this new venture has instilled confidence among investors in BPCL.

The company’s financial performance has been attached below.

With the provided analysis, what do you think will be the ideal units for investment in the company? Do you find BPCL worth the investment? Please do provide your opinions in the comment section below.

Note: C-ASBA is not mandatory for all the investors while applying BPCL’s FPO

(Disclaimer: The provided reasoning in the article has been derived from several assumptions. There is no certainty that the given figure will be the ideal units of investment for the mentioned company. Several external and internal factors responsible in the investment are held constant in the article. This article is solely based upon the presumptions of the author(s). Therefore, investors are asked to use their own judgment, seek financial advice from the trusted independent investment pioneers and financial consultants. Invest at your own risk).

Source: sharesansar