Sanima Middle Tamor Hydropower Limited (NEPSE: TAMOR) — Investment Report

Executive Summary

Sanima Middle Tamor Hydropower Limited (NEPSE: TAMOR) owns and operates the 73 MW Middle Tamor Hydropower Project, a run-of-river plant on the Tamor River in Taplejung district, Nepal, which reached commercial operation in May 2024. The company sells all of its generated electricity to the Nepal Electricity Authority (NEA) under a single, fixed-price power purchase agreement with roughly 28 years remaining before the underlying generation licence expires. The analytical framing that matters most for this company is structural: TAMOR is not a growth business in the conventional reinvestment sense. The rising earnings per share a casual NEPSE screen shows reflects mechanical deleveraging — falling interest expense as a large construction loan amortizes — rather than expanding output or pricing power, and that earnings growth terminates when the licence ends and the plant reverts to the state with no disclosed compensation. The central investment question is whether the current share price is a reasonable one for a finite, leveraged annuity, or prices the asset as though its cash flows were perpetual.

Business Overview

Sanima Middle Tamor Hydropower Limited was incorporated on 5 May 2016 under Nepal's Companies Act 2063 (Source: Company Annual Report FY2081/82, Corporate Information — Primary). Its sole asset is the Middle Tamor Hydropower Project (MTHP), a 73 MW run-of-river plant that reached commercial operation on 5 May 2024, making FY2081/82 the company's first full fiscal year of generation. The plant's generation licence, obtained in 2017 and revised to 73 MW capacity in December 2018, is valid until mid-July 2047 — roughly 28 years from the date of this report — under a Build-Own-Operate-Transfer (BOOT) structure under which the plant transfers to the Government of Nepal free of charge at licence expiry (Source: Company Annual Report FY2081/82, Chairman's Statement — Primary; company website middletamor.com).

Under the applicable accounting standard for service concessions (IFRIC 12), the plant is carried on the balance sheet as an amortizing intangible asset rather than as property, plant and equipment — a direct accounting reflection of the fact that the asset's economic life is capped by the licence term rather than by the physical life of the turbines. The plant holds an unqualified audit opinion with no key audit matters disclosed for FY2081/82, and a CARE-NP BB credit rating. Under Nepal's hydropower tax holiday (Income Tax Act 2058, Section 11), the company pays effectively no corporate income tax for ten years from commercial operation, stepping to a 50% rate for a further five years. No dividend has ever been paid. The promoter is the Sanima Group, with institutional promoters including Sanima Mai Hydropower (SHPC, 16% of TAMOR) and Sanima Hydropower Limited; total promoter shareholding is 70.02%, with the remaining 29.98% held by the public.

In economic substance, TAMOR takes river water, generates roughly 360–400 gigawatt-hours (GWh) a year, and sells essentially all of it to NEA at a fixed blended tariff of approximately NPR 5.47 per unit under a contract with roughly 28 years remaining. Roughly 85% of revenue converts to EBITDA, and nearly all of that services approximately NPR 9.3 billion of amortizing bank debt for roughly the next 11 years, after which free cash flow accrues to equity for the concession's remaining years, before the plant is handed to the state for no compensation.

Financial Performance

Only one full audited fiscal year exists on record at the time of this report (FY2081/82), with a restated FY2080/81 comparative covering roughly two post-commercial-operation months; unaudited quarterly data covers FY2082/83 (Source: Company audited and quarterly financial filings — Primary).

The only clean full-year-to-full-year comparison available is FY2081/82 to FY2082/83: revenue grew only 2.7% — reflecting operational disruptions discussed below — yet profit grew 52.5%, because finance cost fell from 39.4% to 29.8% of revenue as the construction loan amortized. That single line is the entire mechanism behind the headline earnings growth.

Quarterly Snapshot

FY2082/83 standalone quarterly figures, derived from cumulative year-to-date filings (Source: Company quarterly filings — Primary, unaudited).

TAMOR posted a standalone net loss in its second quarter — its only loss quarter in the year shown — because a roughly three-week transmission-line outage cut revenue while amortization and interest continued to accrue. For a plant with roughly 85% fixed-cost economics and no storage capability, transmission and dispatch reliability, rather than water availability, is the primary quarter-to-quarter swing factor.

Market Position

TAMOR sells to a single buyer, NEA, at a regulated, fixed price under a long-term power purchase agreement — there is no competitive market position to analyze in the conventional sense. What matters instead is PPA vintage and the plant's ability to evacuate the power it generates. The company's implied realized tariff of approximately NPR 5.47 per unit in FY2081/82 sits between the standard Nepali run-of-river wet-season rate of NPR 4.80 and dry-season rate of NPR 8.40 — a comparatively cheap-to-mid-vintage tariff for NEA, which in practice places TAMOR relatively high in NEA's payment priority and relatively low in any curtailment queue during periods of system-wide power surplus.

TAMOR's derived plant load factor of roughly 56–58% sits below the typical run-of-river benchmark of roughly 60%, because NEA has not yet completed the planned 220 kV substation needed to fully evacuate the plant's output; the plant has operated on a temporary, lower-capacity transmission arrangement, with a second 220 kV circuit coming online only in mid-2025 and a permanent gas-insulated-switchgear substation still pending as of the most recent disclosure. This represents a transmission bottleneck rather than a hydrology or plant-design problem, implying real generation upside if the evacuation constraint is resolved, alongside ongoing curtailment risk if it is not — a risk compounded by a broadly anticipated surplus of hydropower generation capacity across Nepal's wet season between 2026 and 2028 as a wave of financially-closed projects reach commercial operation.

A further factor specific to TAMOR: the Sanima Group is separately developing the 415 MW Upper Tamor project upstream of Middle Tamor on the same river, and the company's own risk disclosure notes that upstream construction activity could affect sediment load and flow in ways that may affect TAMOR's own generation capacity.

Regulatory and Macro Context

TAMOR's generation licence, concession structure and transfer terms are set by Nepal's electricity-licensing regime under a Build-Own-Operate-Transfer arrangement, with the licence running to mid-July 2047 and no disclosed compensation payable to shareholders at transfer. Under Nepal's Electricity Act, TAMOR pays a flat capacity royalty of NPR 100 per kilowatt annually (approximately NPR 7.3 million) plus a generation royalty of 2% of monthly sales revenue (NPR 39.46 million in FY2081/82); both royalty rates step up materially after the fifteenth year of operation under Nepal's standard royalty schedule, a long-dated cost that reduces the value of the concession's later years relative to its early years. The ten-year, then five-year, income-tax holiday under Income Tax Act 2058 means TAMOR pays effectively no corporate tax currently, with the holiday's later step-down a modelled factor in any long-term valuation.

The power purchase agreement obliges NEA to purchase contracted energy on a take-or-pay basis, subject to the well-documented practical exception of "Non-Dispatch Instructions" during grid constraints — an exception TAMOR has already experienced, as noted in the Quarterly Snapshot above. These dispatch instructions are the mechanism by which an industry-wide generation surplus could affect TAMOR's revenue even though its PPA is nominally a take-or-pay contract.

Governance and Capital Allocation

Related-party disclosure. TAMOR's formal related-party transaction disclosure under Nepal's Companies Act is nil, but the company does engage Sanima Hydro & Engineering Private Limited, a Sanima group entity, for technical consulting services under a contract — a related-party service flow that does not appear in the formal related-party note, representing a transparency gap rather than a confirmed governance failure, since the arm's-length pricing of that service contract is not separately disclosed.

Board and ownership. The seven-member board includes representatives of fellow Sanima group companies SHPC (which separately holds 16% of TAMOR) and Sanima Hydropower Limited, alongside one independent director whose term was expiring at the time of the most recent filing, with disclosed replacement candidates including a geologist, a chartered accountant and a lawyer. Board compensation is modest — total sitting fees of roughly NPR 1.0 million across 13 meetings in the year reviewed — and there is no evidence of promoter-family duplication on the board beyond the cross-group representation noted above.

A disclosed internal inconsistency. TAMOR's own FY2081/82 annual report states its ownership stake in a new joint venture, Tamor Vyoma (targeting the 47 MW Solu Dudhkoshi IV project), as 55% in the Chairman's statement and as 6% in the Directors' report within the same filing — a material discrepancy given that the difference separates an immaterial stub investment from a potentially large future equity commitment. This is logged as an unresolved disclosure item rather than a confirmed fact in either direction.

Capital allocation. TAMOR has not issued bonus or rights shares, and share capital has remained unchanged across every period on record — a genuinely clean no-dilution record for a young hydropower issuer. Debt has amortized by roughly NPR 626 million a year, and the company's chairman has stated an expectation that dividends can be paid "continuously from next year," though as of the most recent annual report on file, no dividend had yet been declared, with management citing cash-reserve requirements for debt service and maintenance.

Key Risks

The price assumes the asset is a perpetuity; it is not. The plant's generation licence runs to mid-July 2047, after which the asset transfers to the state with no disclosed compensation. Capitalizing current earnings at a conventional growth-stock multiple implicitly treats a finite, roughly 28-year cash-flow stream as though it continued indefinitely.

Concentrated, single-river, highly leveraged exposure. TAMOR carries a debt-to-equity ratio of roughly 2.16 times on a single plant on a single river, with no second asset to diversify against a repeat weather or transmission event; the company's own second-quarter loss in the year reviewed illustrates how quickly an outage can turn a profitable quarter into a loss given the plant's largely fixed-cost structure.

Capital-allocation uncertainty. Whether the mechanical deleveraging cash flow is eventually paid out as dividends, or redirected into new, separately-leveraged group projects such as Tamor Vyoma, is the single largest open question for a prospective long-term holder; the unresolved 55%-versus-6% ownership disclosure for Tamor Vyoma makes this uncertainty concrete rather than theoretical.

Valuation Context

At a reference price of NPR 435.10 (10 July 2026 last traded price), TAMOR traded at approximately 23 times trailing earnings per share and roughly 3.4 times stated net asset value per share. Because the underlying asset is a finite, amortizing concession, a standard discounted-cash-flow approach with an explicit terminal value of zero — rather than a perpetuity-based earnings multiple — is the more appropriate valuation frame for this name.

Scenario-based fair-value estimates (each labeled Estimate) built on a finite-life discounted cash flow basis span a bear-case estimate near NPR 165, reflecting continued transmission curtailment, a deferred dividend, and a leveraged capital call into new group projects; a base-case estimate near NPR 220, reflecting orderly deleveraging, generation stabilizing near 380 GWh, and the beginning of modest dividends; and a bull-case estimate near NPR 310, reflecting a resolved evacuation constraint lifting generation toward or above 400 GWh alongside a genuine shift toward shareholder dividends. On an enterprise-value-per-megawatt basis, TAMOR's reference price implied a valuation of roughly NPR 323 million per installed megawatt, compared with the plant's own disclosed construction cost of roughly NPR 191 million per megawatt — a multiple to replacement cost that a finite-life, partially-evacuation-constrained asset arguably does not support without a favorable view on dividend policy and generation upside.

What We're Watching

TAMOR's first dividend decision, expected around its upcoming annual general meeting, which will be the clearest single signal on whether the mechanical deleveraging cash flow is returned to shareholders or redirected into new group capital projects.

Whether NEA completes the planned transmission upgrades, which would resolve the current evacuation constraint and could lift annual generation from the current roughly 360–370 GWh toward 400 GWh or more.

The confirmed ownership percentage in the Tamor Vyoma joint venture, which the company's own FY2081/82 annual report discloses inconsistently as either 55% or 6% — a fact that materially changes whether this is an immaterial pipeline stub or a substantial future capital commitment.

References

1. Sanima Middle Tamor Hydropower Limited, Audited Annual Report FY2081/82 — accessible via company filings and middletamor.com — Primary.
2. Sanima Middle Tamor Hydropower Limited, FY2082/83 Q1–Q4 unaudited quarterly disclosures — accessible via SEBON filings — Primary (unaudited).
3. Sanima Mai Hydropower Limited (SHPC), audited financial filings, used for peer and ownership cross-reference — accessible via SEBON — Primary.
4. Sanima Hydropower-group company website, middletamor.com (project licence dates, capacity history, Upper Tamor project) — accessed 2026-08-26 — Primary (company self-reported).
5. nepsealpha.com and nepalipaisa.com, TAMOR price and market-capitalization data, 10 July 2026 — Secondary.
6. Nepal Electricity Authority, published annual reports FY2019/20–FY2024/25, used for sector counterparty and tariff-schedule context — nea.org.np — Primary (regulator/counterparty).