Butwal Power Company Limited (NEPSE: BPCL) — Investment Report

Executive Summary

Butwal Power Company Limited (NEPSE: BPCL) is Nepal's oldest private hydropower developer, established in 1965 and privatized in 2003, and is frequently described in market commentary by reference to a headline portfolio of roughly 894–898 MW across the Marsyangdi Cascade and other projects. The company's own disclosures tell a more modest story: applying BPC's disclosed ownership percentages in each project, attributable capacity is approximately 195 MW, of which roughly 55 MW is currently operating — a figure the company's own management discussion confirms directly. BPCL today functions substantially as a holding company, with investments in subsidiaries and associates rising from 43.0% to 64.7% of standalone total assets over five years, sitting atop two small legacy power plants and a structurally loss-making electricity distribution business. The analytical core of this report is reconciling BPCL's holding-company structure, its per-megawatt economics relative to listed peers, and a substantial unfunded capital commitment to its pipeline of part-owned, Chinese-co-invested hydropower projects.

Business Overview

Butwal Power Company Limited was established and registered in 1965 under Nepal's Companies Act 2021, by the United Mission to Nepal, the Government of Nepal, Nepal Electricity Authority (NEA) and Nepal Industrial Development Corporation, with a mandate to develop hydropower alongside technology transfer and human-resource development (Source: BPC Annual Report FY2081/82, Note 1 "Background" — Primary). It converted to a public limited company in 1993 and was privatized in 2003.

BPC's four stated lines of business are hydroelectricity generation, hydroelectricity distribution, project development, and investment in the shares of other hydropower projects and companies. The company owns outright the 9.4 MW Andhikhola Power Plant (service concession to roughly 2045) and the 12 MW Jhimruk Power Plant (service concession to roughly 2046), plus a distribution network serving 64,687 consumers across Syangja, Palpa, Pyuthan and Arghakhanchi districts. Its subsidiaries include Nepal Hydro & Electric Limited (51.30%), Khudi Hydropower Limited (60% equity), BPC Services Limited (100%), Nyadi Hydropower Limited (71.68%, NEPSE ticker NYADI, operator of the 30 MW Nyadi plant), Hydro-Consult Engineering Limited (100%), Gurans Energy Limited (100%) and Chino Hydropower Limited (65%). Associates and joint ventures include Kabeli Energy Limited (27.24%), Manang Marsyangdi Hydropower Company (19.40%), Himtal Hydropower Company (23.23%), Marsyangdi Transmission Company (19.40%), and an investment at fair value in Himal Power Limited (16.88%, operator of the 60 MW Khimti-I plant) (Source: BPC Annual Report FY2081/82, Notes 6 and 7 — Primary).

Applying BPC's own disclosed ownership percentages against project megawatts produces attributable capacity of roughly 195 MW across the full portfolio, of which approximately 55 MW is operating today — a figure that reconciles closely with the company's own management discussion, which states that "55 MW of BPC's equity capacity is already in operation, with a further 302 MW planned for future development" (Source: BPC Annual Report FY2081/82, Management Discussion and Analysis — Primary). The widely-cited 601 MW Marsyangdi Cascade figure, for example, reflects BPC's ownership of only 19.40% to 23.23% of the relevant project companies, with Chinese partner entities (SCIG, CXIG and QYEC, through Hong Kong holding structures) owning 76.77% to 80.60%.

Financial Performance

Standalone (audited), NPR

Consolidated (Group, audited, as originally reported each year), NPR

(Source: BPC audited annual reports FY2077/78–FY2081/82 — Primary.)

Over the five-year window, standalone return on equity fell from 7.15% to 3.08%, consolidated earnings per share nearly halved from NPR 11.41 to NPR 5.54 with one loss year, and consolidated debt-to-equity rose from 0.55 times to 1.01 times as the group's construction pipeline drew down capital. Consolidated figures have been restated in the comparative column of at least three consecutive annual reports because a key subsidiary's audited statements were not ready in time — meaning the Group's reported historical series is, by the company's own disclosure, a moving target.

FY2082/83 unaudited standalone results showed profit after tax of NPR 335.4 million, a 54.3% increase, with earnings per share of NPR 9.84. However, "Other income" was NPR 214.6 million — roughly 52% of profit before tax and roughly 85% of the year's entire increase in profit before tax. Stripped of that line, profit before tax grew approximately 12.3%, not 55.0%. A portion of disclosed "Other income" in past years has consisted of dividends from BPC's own subsidiaries, which eliminate entirely on a consolidated basis and do not represent third-party earnings.

Quarterly Snapshot

FY2082/83 standalone quarterly figures, derived from cumulative filings (Source: BPC quarterly filings — Primary, unaudited).

The fourth quarter, which falls within the monsoon season when hydro generation is typically strongest, was the weakest profit quarter of the year at NPR 36.1 million — 11% of the full year — while the second quarter (dry season) was the strongest at NPR 140.6 million, 42% of the year, despite having lower revenue than the first quarter. The difference is almost entirely the NPR 66.2 million of "Other income" booked in the second quarter, underscoring that the year's reported profit growth is substantially a non-operating phenomenon rather than a generation story. Separately, a comparison of BPC's own FY2081/82 unaudited fourth-quarter filing against its subsequent audited annual report shows audited profit after tax came in 3.9% below the unaudited figure, after the removal of an impairment write-back and the addition of a fresh impairment charge at audit — a reminder that unaudited full-year figures at this company have historically been revised down modestly at audit.

Market Position

Attributable operating capacity versus headline figures.

(Source: BPC Annual Report FY2081/82, Notes 6/7 and project narratives — Primary; attributable-MW figures Derived by applying BPC's disclosed ownership percentages.)

BPC's own plants generate at a lower per-megawatt economic return than more recently built peer hydropower plants. BPC's realized tariff on sales to NEA was approximately NPR 4.76 per unit in FY2081/82, reflecting the older vintage of its power purchase agreements, compared with approximately NPR 5.47 per unit realized by a more recently commissioned comparable Nepali run-of-river plant. BPC also pays corporate tax at an effective rate of roughly 19%, while newer hydropower plants commissioned within Nepal's tax-holiday window pay close to zero. On a derived EBITDA-per-megawatt basis using BPC's own operating plants and distribution business, BPC's figure of approximately NPR 13.9 million per megawatt compares with approximately NPR 24.1 million per megawatt for a more recently built peer plant — roughly 58% of that peer's per-megawatt cash generation.

The distribution business, on a fully allocated basis, is a structural loss-maker. BPC voluntarily discloses an internal segment note reallocating inter-departmental electricity transfers between its generation and distribution operations. On that fully-allocated basis, the distribution segment lost approximately NPR 151.6 million in FY2081/82 and NPR 149.8 million in FY2080/81, even though the segment's unadjusted, as-printed subtotals show it as profitable. The company has stated it is in the process of initiating a transfer of the distribution business to NEA or the Government of Nepal; if completed, BPC would lose approximately 41% of standalone revenue but could gain a meaningful improvement in pre-tax profit, since the business currently consumes capital and runs at a loss once internal transfer pricing is properly allocated.

Regulatory and Macro Context

BPC's own Andhikhola and Jhimruk plants are accounted for as service concessions under IFRIC 12 rather than as owned fixed assets, reflecting that their generation, transmission and distribution rights end in 2045 and 2046 respectively, after which the underlying assets transfer to the state — meaning these plants are a finite, roughly 19-year remaining annuity rather than a perpetual asset. BPC's wider pipeline of generation licences, each issued for 35-year terms by Nepal's Department of Electricity Development, has in several cases run for more than seven years without reaching financial closure, a delay the company's own chairman has stated has "resulted in lost revenue opportunities for the Company." The Mugu Karnali project's capacity-expansion application has been blocked by a boundary overlap with a much larger state-sponsored storage hydropower project, and BPC's own disclosure treats the related spend as a probable write-off risk.

Nepal's foreign-currency power-purchase-agreement prohibition for projects under 100 MW is the reason the long-stalled Khimti-I ownership and tariff renegotiation involves converting the plant's historical hard-currency tariff into Nepali rupees — a redenomination that, combined with NEA's separately disclosed entitlement to 50% of the project's shares (effective since 2020 and still unresolved as of the most recent filing), has materially affected that associate's profitability. BPC pays corporate income tax at an effective rate of roughly 19%, as its legacy plants fall outside Nepal's ten-year income-tax holiday available to more recently commissioned projects.

Governance and Capital Allocation

Ownership. Shangri-La Energy Limited has held 56.30% of BPC's shares unchanged across the years reviewed, with the Government of Nepal (7.42%), Norway's IKN Nepal (1.58%), United Mission to Nepal (1.37%) and NEA (0.86%) holding smaller stakes, and the general public holding 32.47% across more than 50,000 shareholders. Shangri-La Energy's own public disclosures identify six Nepali promoter business-house groups behind it. Several of BPC's board directors are disclosed as directors of Shangri-La Energy or affiliated group entities, and small-value related-party vendor relationships exist with group-affiliated trading companies.

Related-party transactions are small and declining. Disclosed promoter-affiliated vendor purchases totalled NPR 67,800 in FY2081/82 — roughly one-hundredth of one percent of revenue, and down 96% over five years — while chief executive compensation has fallen modestly over the same period. On the evidence of the related-party disclosure, value does not appear to be leaving the company through related-party transactions, which represents a comparatively clean governance record on that specific dimension relative to many NEPSE-listed companies with a controlling shareholder group.

Board structure. Five of eight board seats, including an alternate director, represent the 56.30% shareholder, and one of two independent-director positions was vacant as of the most recent annual report, a vacancy the company discloses itself. The sitting independent director separately holds a directorship at a wholly BPC-owned subsidiary that transacts with BPC. A board election at the most recent annual general meeting was uncontested, with exactly as many candidates as seats available.

Capital allocation history. BPC's dividend has fallen from a combined 25% of par value (cash plus bonus) six years ago to 6% most recently, even as the company has not raised new equity capital in roughly twelve years. The FY2081/82 cash dividend represented approximately a 94% payout of that year's earnings per share, a payout level that sits alongside a disclosed unfunded capital commitment to BPC's hydropower pipeline of approximately NPR 5.96 billion — roughly 8.1 times the company's cash on hand and roughly 83% of total equity at the most recent balance-sheet date (Source: BPC Annual Report FY2081/82, Note 35 — Primary). An announced follow-on equity offering was proposed in December 2023 and subsequently cancelled; a proposed 40%-of-paid-up-capital rights issue announced in April 2025 had not been tabled at the company's most recent annual general meeting as of the date of this report; and a proposed sale of a block of the company's Nyadi Hydropower shares was halted by Nepal's Securities Board (SEBON) in May 2025 on conflict-of-interest grounds related to overlapping board representation. None of these three funding paths had been executed as of the most recent filing reviewed.

Key Risks

A substantial unfunded capital commitment with no executed funding plan. BPC's disclosed commitments to its hydropower special-purpose vehicles exceed amounts invested by approximately NPR 5.96 billion, and all three publicly reported routes to close that gap — a follow-on offering, a rights issue, and a share-block sale — had, as of the most recent filing, been either cancelled, left untabled, or halted by the regulator.

Earnings quality in the most recent reported year is uncertain. A large share of the FY2082/83 profit increase stems from an unidentified "Other income" line that is not broken down in any disclosure reviewed, and the company's own audit history shows unaudited profit figures have previously been revised downward at audit.

The Khimti-I acquisition price is undisclosed. BPC's board approved the acquisition of the remaining Statkraft and Eviny stakes in Himal Power Limited (operator of the 60 MW Khimti-I plant) in September 2025, but neither the purchase price nor the funding source has been publicly disclosed by any party as of the most recent filing — a transaction that, depending on price, could materially change BPC's attributable operating capacity.

The core operating plants are finite concessions, not perpetual assets. Andhikhola and Jhimruk transfer to the state in 2045 and 2046 respectively with no disclosed compensation, meaning any valuation approach that treats BPC's operating earnings as a perpetuity overstates the value of these two plants specifically.

Valuation Context

At a reference closing price of NPR 645.00 (7 September 2026), BPCL traded at approximately 65.6 times trailing standalone earnings per share and roughly 116 times trailing consolidated earnings per share, and approximately 3.06 times standalone book value per share. On an enterprise-value-per-attributable-operating-megawatt basis, BPCL's reference price implied a valuation of roughly NPR 442 million per megawatt, compared with roughly NPR 325–346 million per megawatt observed for comparable, more recently built peer hydropower plants — a premium the report attributes to the market applying a uniform per-megawatt price across plants with materially different per-megawatt cash generation.

Scenario-based fair-value estimates for BPCL (each labeled Estimate, built using a sum-of-the-parts approach valuing the operating plants on a finite-life basis and the subsidiary/associate stakes at a range of assumptions) span a bear-case estimate near NPR 80, assuming a dilutive capital raise and limited recovery in the pipeline investments; a base-case estimate near NPR 194, assuming the Manang Marsyangdi project completes and returns its invested capital with modest additional value, the distribution-business transfer has a partial probability of completing, and the Nyadi stake is valued at a discount to its own market price reflecting the regulator's hold on its disposal; and a bull-case estimate near NPR 321, assuming the Khimti-I acquisition completes at an attractive price and most pipeline projects advance as planned. Inverting the share price under a standard excess-return framework implies the market is pricing a sustainable return on equity well above anything BPCL has delivered in the five years examined, or alternatively a cost of equity close to Nepal's prevailing bank deposit rate rather than a conventional equity risk premium — consistent with a broader pattern observed across several listed Nepali hydropower names, where implied costs of equity cluster near deposit-rate levels during Nepal's current low-interest-rate environment.

What We're Watching

The composition of the NPR 214.6 million "Other income" line in FY2082/83, which represents roughly half of reported pre-tax profit for the year and is not broken down in any disclosure reviewed; BPC's upcoming audited annual report is expected to resolve this.

The disclosed price and funding structure of the Himal Power Limited (Khimti-I) acquisition, announced in September 2025 but still undisclosed as to consideration as of the most recent filing — this is potentially the single largest capital-allocation decision in BPC's recent history.

Whether the proposed 40% rights issue, or an alternative funding mechanism, is tabled and executed, resolving the roughly NPR 5.96 billion gap between BPC's committed capital obligations and its invested capital to date.

References

1. Butwal Power Company Limited, Audited Annual Reports FY2077/78 through FY2081/82 — accessible via SEBON and BPC's corporate website (bpc.com.np) — Primary.
2. Butwal Power Company Limited, FY2082/83 Q1–Q4 unaudited quarterly disclosures — accessible via SEBON filings — Primary (unaudited).
3. Butwal Power Company Limited, 33rd Annual General Meeting minutes, 12 January 2026 — bpc.com.np — Primary.
4. ShareSansar, "Butwal Power Company Proposes 5% Cash Dividend for FY 2079/80; Plans to Issue FPO," 17 December 2023 — sharesansar.com — Secondary.
5. ShareSansar, "Butwal Power Company Limited Cancels FPO Issuance Process, Proposes Rights Share Issuance," 7 April 2025 — sharesansar.com — Secondary.
6. ShareSansar, "Butwal Power Company Issues 15-Day Notice to Sell 31 Lakh Shares of Nyadi Hydropower in Secondary Market," 7 May 2025 — sharesansar.com — Secondary.
7. ShareSansar, "SEBON Directs Butwal Power Company to Halt Sale of Nyadi Hydropower Shares Over Regulatory Concerns," 15 May 2025 — sharesansar.com — Secondary.
8. ShareSansar, "Butwal Power Company to Acquire Major Shares in Himal Power Limited," 26 September 2025 — sharesansar.com — Secondary.
9. Statkraft, "Statkraft and Eviny sell all shares in Nepalese Himal Power Ltd to Butwal Power Company," press release, 26 September 2025 — statkraft.com — Secondary.
10. New Business Age, "Ownership Transfer of Khimti Hydropower Project Delayed," 21 December 2021 — newbusinessage.com — Secondary.
11. UrjaKhabar, "Financial Closure Completed for 135 MW Manang-Marsyangdi," — urjakhabar.com — Secondary.
12. Vidyut Utpadan Company Limited, Mugu Karnali Storage Hydroelectric Project page — vucl.org — Secondary.
13. NEPSE, closing price data for BPCL, NYADI, SHPC and TAMOR, 7 September 2026 — nepalstock.com.np — Secondary.