TRIBHUVAN UNIVERSITY

CENTRAL CAMPUS
DEPARTMENT OF MECHANICAL ENGINEERING

A Report on
Pro-Forma Statement and Financial Analysis of
SSB Hydro Power Company Limited

Submitted to:
Prof. Dr. Amrit Man Nakarmi
Department of Mechanical Engineering
Central Campus

Submitted by:
Basanta Pancha (073/MSRE/505)
Sagun Paudyal (073/MSRE/516)
Sushil Paudel (073/MSRE/519)

2018
 Acknowledgement

We are indebted to Prof. Amrit Man Nakarmi for providing us a useful opportunity to work on
the “Pro Forma Statement of SSB Hydropower Co. Ltd.”. The whole journey of preparation of
Pro forma statement of this company was very fruitful to us as we were able to look into the
details and minutiae of financial statements and risk associated with business plan. We are
thankful to the direct or indirect help of all our peers in the preparation of the report in this
tangible form.

Team members

ii
Executive Summary
SSB Hydropower Co. Ltd. is a renewable energy company. The company will principally
engaged in the promotion of hydropower sector of Nepal through private investment. As a first
step, the company will invest in medium hydro power project of 200 MW capacities. The
electricity will be connected to the national grid line through the NEA sub-station via a 132 KV
transmission line.
The construction Period of hydropower project will be six years. The cost of the project will be
approximately NRs 30 billion; taking per unit cost of the hydropower is NRs. 150,000 per KW of
production. The financing of the project is done through the mixture of debt from the consortium
of some financial institutions and equity from the promoters of the company in the ratio of 70:30.
The revenue generated by the project will be the income of the company. According to the
Power Purchase Agreement (PPA) between the company and the Nepal Electricity Authority, the
unit revenue generated from the sales of the electricity will be NRs 4.80 per unit in the wet
season (May to October) and NRs 8.40 per unit in the dry season (November to April). So,
calculating the power generated in dry and weight season, the average revenue per unit generated
electricity is Rs.6.14. The economic life of the project is 25 years.
Financial evaluation shows that the NPV of the project is 41 billion with 1.38 profitability index,
the internal rate of return is 29%.

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Table of Contents
Acknowledgement....................................................................................................................................... ii
Executive Summary...................................................................................................................................iii
List of Figures..............................................................................................................................................2
List of Tables..............................................................................................................................................2
Introduction.................................................................................................................................................3
Objective.....................................................................................................................................................4
Specific Objectives..................................................................................................................................4
Methodology...............................................................................................................................................4
Literature review.........................................................................................................................................5
Financial Statements...............................................................................................................................5
Income Statement:...............................................................................................................................5
Balance Sheet:.....................................................................................................................................6
Statement of cash flow:.......................................................................................................................8
Sensitivity Analysis.................................................................................................................................9
Financial Ratios Analysis:.....................................................................................................................10
Company Overview..................................................................................................................................15
Source of Financing..............................................................................................................................16
Specifications and Assumptions................................................................................................................16
Technical Specifications.......................................................................................................................17
Pro Forma Statements...............................................................................................................................18
Pro forma Income statements..............................................................................................................18
Pro forma Balance Sheet.......................................................................................................................21
Pro Forma Cash Flow Statements.........................................................................................................24
Analysis....................................................................................................................................................27
Sensitivity Analysis...............................................................................................................................28
Monte Carlo Simulation........................................................................................................................29
Financial Ratios....................................................................................................................................30
Conclusion................................................................................................................................................31
References.................................................................................................................................................32
Annex
List of Figures
Figure 1: Basic Components of Income Statement.....................................................................................5
Figure 2: Financial mix for Investment......................................................................................................16
Figure 3: Investment in different components of Hydropower.................................................................17
Figure 4: Monte Carlo Simulation for 45 billion of NPV.............................................................................29
Figure 5: Monte Carlo Simulation for calculated NPV...............................................................................29

List of Tables
Table 1: Assumptions for financial analysis...............................................................................................16
Table 2: Energy production per year calculation of SSBHCL......................................................................17
Table 3: Some useful findings....................................................................................................................27
Table 4: Calculations of Weighted Average Cost of Capital.......................................................................27
Table 5: Sensitivity analysis of variation in Investment with NPV, IRR, and LCOE.....................................28
Table 6: Financial ratio calculations..........................................................................................................30

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Introduction
The pro forma accounting is a statement of the company's financial activities while excluding
"unusual and nonrecurring transactions" when stating how much money the company actually
made. Expenses often excluded from pro forma results include company restructuring costs, a
decline in the value of the company's investments, or other accounting charges, such as adjusting
the current balance sheet to fix faulty accounting practices in previous years.
There was a boom in the reporting of pro forma results in the USA starting in the late 1990s,
with many dot-com companies using the technique to recast their losses as profits, or at least to
show smaller losses than the US GAAP accounting showed. The U.S. Securities and Exchange
Commission requires publicly traded companies in the United States to report US GAAP-based
financial results, and has cautioned companies that using pro forma results to obscure US GAAP
results would be considered fraud if used to mislead investors.
In business, pro forma financial statements are prepared in advance of a planned transaction,
such as a merger, an acquisition, a new capital investment, or a change in capital structure such
as incurrence of new debt or issuance of stock. The pro forma models the anticipated results of
the transaction, with particular emphasis on the projected cash flows, net revenues and (for
taxable entities) taxes. Consequently, pro forma statements summarize the projected future status
of a company, based on the current financial statements. For example, when a transaction with a
material effect on a company's financial condition is contemplated, the finance department will
prepare, for management and board review, a business plan containing pro forma financial
statements demonstrating the expected effect of the proposed transaction on the company's
financial viability. Lenders and investors will require such statements to structure or confirm
compliance with debt covenants such as debt service reserve coverage and debt to equity ratios.
Similarly, when a new corporation is envisioned, its founders will prepare pro forma financial
statements for the information of prospective investors. Pro forma figures should be clearly
labeled as such and the reason for any deviation from reported past figures clearly explained.

A business plan is a written description of our business's future. That's all there is to it a
document that describes what we plan to do and how we plan to do it. If you jot down a
paragraph on the back of an envelope describing your business strategy, you've written a plan, or
at least the germ of a plan.

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Objective
The main objective of this study is to formulate the Pro forma statement of the SSB
Hydropower Co Ltd.

Specific Objectives
To obtain the main objective we have gone through the following specific objectives.

 To familiarize with the financial statements.

 To familiarize about the Pro forma statements.
 To perform few sensitivity analysis
 To measure the risk associated through Monte Carlo simulation.
 To calculate the different financial ratios.

Methodology
We have carried out following methodological strategies during our study.

 Literature review: we have done literature review from the different books related
to energy finance and financial management.
 Data collection:
 Pro forma Statement Projection: Pro forma statement is projected for 25
years throughout the economic life of the project
 Sensitivity analysis/ simulations:
 Financial ratios calculations: The different financial ratios are calculated on
the basis of pro forma Statements.
 Analysis: the interpretation have done on the basis of the variation on the
financial ratios
 Documentation: and finally prepared the report.

4
Literature review
Financial Statements
A financial statement is the record that outlines the financial activities of a business, an individual or any
other entity as clearly and as concisely as possible for both the entity and readers. Financial statements
of business usually includes: income statement, balance sheet and statement of cash flow.

Income Statement:
Income statement is a financial statement that represents a moving picture of a business,
comparing its expenses against its revenue over a period of time to show its net profit (or
loss).

Figure 1: Basic Components of Income Statement

 Net sales:
Sales revenue is recorded when a product is shipped, or more precisely, when ownership
of the product (or service) is transferred from the seller to the buyer.

 Cost of goods sold

Whenever a product is manufactured or sold, certain direct costs are incurred. These costs
are designated on the income statement as cost of goods sold, or COGS. Generally,

 Operating cost
Operating expenses are expenses other than cost of goods sold that a company incurs in
the normal course of business. These include items such as management salaries,
advertising expenditures, repairs and maintenance costs, depreciation, research and
development expenditures, lease payments, and general and administrative expenses.

 Capital

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 Capital is the any form of wealth employed to produce more wealth. It exists in many
forms in a typical business, including cash, inventory, plant and equipment.

 Fixed Capital
Fixed capital is the capital needed to purchase a company’s permanent or fixed assets
such as land, buildings, computers and equipment. Fixed capital use usually the frozen
capital hence the lenders of fixed capital assets expect that assets purchased to improve
the efficiency and thus the profitability and cash flow that ensures repayment.

 Working Capital

Working capital is the capital needed to support a business’s short-term operations.

Working Capital = Current assets – Current Liabilities

Working capital is used to pay inventory, pay bills, finance credits sales, pay wages and
salaries and take care of any unexpected emergencies.

 Interest expense
Interest expense is the cost to the firm of borrowing money.

 Taxes
Income taxes are a necessary part of business for all profitable for-profit firms.

 Net income
Net income (also called net profit or earnings) is the “bottom line” of the income
statement. It represents the base profit earned by a firm in a given accounting period. Net
income divided by the number of common shares outstanding is referred to as earnings
per share, or EPS. This value represents the profit earned for each share of stock.

Balance Sheet:
A balance sheet is a financial statement that provides a snapshot of a business financial
position, estimating its worth on a given date. Its two major sections show the assets the
business owns and the claims creditors and owners have against those assets. It is built on the
fundamental accounting equation:

Assets = Liabilities + Owners’ Equity

Any increase in any side of the equation must be offset by an increase or decrease on the
other side. The balance sheet is usually prepared on the last day of the month.

i. Assets

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A resource with economic value that an individual, corporation or country owns or controls
with the expectation that it will provide future benefit. Assets are bought to increase the value of
a firm or benefit the firm's operations.

 Current Asset

Current means that the asset will be consumed within one year. Generally, this
includes things like cash, accounts receivable and inventory.

 Fixed Asset

Fixed assets are the assets that are not consumed or sold during normal course of
business instead are acquired for a long term use. They enable the owner to carry on its
operations. On a balance sheet, these assets are shown at their book value (purchase
price, less depreciation)

ii. Liabilities

Liabilities are creditors’ claim against a company’s assets. Liabilities requires mandatory
transfer of assets or provision of service at specified dates or in determinable future.

Eg. Account or wage payable, accrued rent and taxes, trade debt and short and ling term
loans.

Owners’ equity is also termed as liability because it is an obligation of the company to

its owners.

 Current Liabilities

Current liabilities are those debts that must be paid within one years or within the normal
operating cycle of a company. Similar to a current asset, a current liability is, in general, a
liability that is expected to be paid off in less than one year. Current liabilities includes:

 Notes Payable
Notes payable frequently represents the short term borrowing of a company from a bank
for the seasonal financing of current assets, in particular, account receivable and
inventory.

 Account Payable
Account payable represent purchases (usually for inventory) made by the company from
suppliers on credit. Account payable are, in general, a source of interest-free financing for
a company in the sense that if the company pays its account in timely manner, financing
always remains available for additional purchases.

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  Accrued Expenses
Accruals represent specific direct and operating costs that a company has expensed on its
income statement which in fact have yet to be paid at the close of the reporting period.
These expenses are usually paid at regular intervals and include such items as utilities,
rent, wages and salaries and taxes.

 Current portion of long-term debt

For a long term loan, the firm makes periodic payments over the life of the loan that
includes principal reduction as well as interest. The current portion of long term debt
represents the principle portion of these installment payments that is due over the next 12
months.
 Long-term Debt
Long term debt represents liabilities with maturities in excess of one year. It is usually
used to finance long term asset.

 Owners’ Equity

Owners’ equity is the value of the owners’ investment on the business.

 Preferred stock - Preferred stock is a hybrid security including both elements of debt
and equity. It promises a fixed periodic payment similar to debt. However, if this
payment must be skipped due to insufficient earnings, preferred stockholders have no
recourse, similar to equity. Preferred stock is usually cumulative, meaning that skipped
payments accrue and must be paid when earnings allow. Finally, preferred stock often
does not include voting rights.
 Common stock - On many balance sheets common stock is divided into two
components: common stock at par value and additional paid-in capital (or, capital
surplus). The first component can be used to determine the number of shares currently
outstanding. The second component represents the additional money (over and above par
value) generated when the company actually sold the stock.
 Retained earnings - Retained earnings represent the cumulative total of all net income
that has been reinvested into the company. Many companies retain some of their annual
profit to fund the expansion (replacement) of assets to reduce their reliance on outside
capital markets.

Statement of cash flow:

The financial statement showing the changes in a company’s working capital from the beginning of the
year by listing both the sources and uses of those funds. To prepare the statement of cash flow, the
owner must assemble the balance sheet and the income statements summarizing the present year’s
operations. It answers the questions:

a. Where the cash (money) came (will come) from?

8
 b. Where the cash (money) went (will go)?
Statement of cash flow is a financial statement that shows how changes in balance sheet accounts and
income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and
financing activities.

 Cash flow resulting from operating activities

Operating activities include the production, sales, and delivery of the company's product
as well as collecting payments from its customers. This could include purchasing raw
materials, building inventory, advertising, and shipping the product.

 Cash flow resulting from investing activities

Investing activities are purchases or sales of assets (land, building, equipment, marketable
securities, etc.), loans made to suppliers or received from customers, and payments
related to mergers and acquisitions.

 Cash flow resulting from financing activities.

Financing activities include the inflow of cash from investors, such as banks and
shareholders and the outflow of cash to shareholders as dividends as the company
generates income. Other activities that impact the long-term liabilities and equity of the
company are also listed in the financing activities section of the cash flow statement.
 It also may include a disclosure of non-cash financing activities.

Sensitivity Analysis
A technique used to determine how different values of an independent variable will impact a
particular dependent variable under a given set of assumptions. This technique is used within
specific boundaries that will depend on one or more input variables, such as the effect that
changes in interest rates will have on a bond's price.

Sensitivity analysis is the study of how the uncertainty in the output of a mathematical model or
system (numerical or otherwise) can be apportioned to different sources of uncertainty in its
inputs. A related practice is uncertainty analysis, which has a greater focus on uncertainty
quantification and propagation of uncertainty. Ideally, uncertainty and sensitivity analysis should
be run in tandem.
Sensitivity analysis can be useful for a range of purposes, including:
 Testing the robustness of the results of a model or system in the presence of uncertainty.
 Increased understanding of the relationships between input and output variables in a system
or model.

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 Uncertainty reduction: identifying model inputs that cause significant uncertainty in the
output and should therefore is the focus of attention if the robustness is to be increased
(perhaps by further research).
 Searching for errors in the model (by encountering unexpected relationships between inputs
and outputs).
 Model simplification – fixing model inputs that have no effect on the output, or identifying
and removing redundant parts of the model structure.
 Enhancing communication from modelers to decision makers (e.g. by making
recommendations more credible, understandable, compelling or persuasive).
 Finding regions in the space of input factors for which the model output is either maximum
or minimum or meets some optimum criterion (optimization and Monte Carlo filtering).

Financial Ratios Analysis:

A sustainable business and mission requires effective planning and financial management. Ratio
analysis is a useful management tool that will improve our understanding of financial results and
trends over time, and provide key indicators of organizational performance. Managers will use
ratio analysis to pinpoint strengths and weaknesses from which strategies and initiatives can be
formed. Funders may use ratio analysis to measure our results against other organizations or
make judgments concerning management effectiveness and mission impact. For ratios to be
useful and meaningful, they must be:
 Calculated using reliable, accurate financial information (does our financial information
reflect our true cost picture)
 Calculated consistently from period to period
 Used in comparison to internal benchmarks and goals
 Used in comparison to other companies in our industry
 Viewed both at a single point in time and as an indication of broad trends and issues over
time
 Carefully interpreted in the proper context, considering there are many other important
factors and indicators involved in assessing performance.

Classification of financial ratios:

When we assess a company's operating performance, we want to know if it is applying its assets
in an efficient and profitable manner. When we assess a company's financial condition, we want
to know if it is able to meet its financial obligations.
There are six aspects of operating performance and financial condition we can evaluate from
financial ratios:
 Profitability/sustainability Ratios provides information on the amount of income from
each dollar of sales.
 Activity Ratios relates information on a company's ability to manage its resources (that
is, its assets) efficiently.
 Leverage Ratios provides information on the degree of a company's fixed financing
obligations and its ability to satisfy these financing obligations

10
  Liquidity Ratios provides information on a company's ability to meet its short−term,
immediate obligations
 Market Ratios/Share holder Ratios describes the company's financial condition in
terms of amounts per share of stock.
 Return on Investment Ratio provides information on the amount of profit, relative to
the assets employed to produce that profit.

1. Profitability ratios:

Profitability ratios (also referred to as profit margin ratios) compare components of

income with sales. They give us an idea of what makes up a company's income and are
usually expressed as a portion of each dollar of sales. The profit margin ratios we discuss
here differ only by the numerator. It's in the numerator that we reflect and thus evaluate
performance for different aspects of the business: Generally two major types of profitability
ratios are calculated:
 Profitability in relation to sales
 Profitability in relation to investment

Profitability in relation to sales:

i. Gross profit margin is the ratio of gross income or profit to sales. This ratio
indicates how much of every dollar of sales is left after costs of goods sold.
Mathematically expressed as:

ii. Net profit margin is the ratio of net income (a.k.a. net profit) to sales, and indicates
how much of each dollar of sales is left over after all expenses. Mathematically
expressed as:

Profitability in relation to investment:

iii. Return on Assets (ROA) is a useful measure of the profitability of all financial
resources invested in the firm’s assets. It evaluates the total funds without any regard
to the sources of funds this ratio is particularly useful to evaluate the performance of
divisions in a multi divisional firm. Generally these divisions have the responsibility
of using and controlling assets without any responsibility towards the raising and
utilizing funds. Mathematically expressed as:
Return on Assets (ROA) = Net Profit after Taxes/Total
iv. Return on Equity (ROE) is the ratios that indicate how well the firm has used the
source of the owners .in fact, this ratio is the most important relationship in ratio
analysis. The earning of a satisfactory return is the most desirable objective of

11
 business. The ratio of net profit to owners’ equity reflects the extent to which this
objective has been accomplished. This ratio is, thus of great interest to present as well
as prospective of shareholders and also of great concern to management, which has
the responsibility of maximizing the owners’ welfare.

The returns on owners’ equity of the company should be compared with the ratios for the
other similar companies and the industry average. This will reveal the relative performance
and relative strength of the company in attracting future investments. Mathematically
expressed as:

Return on Equity (ROA) = Net Income/Owner s’ Equity

2. Activity Ratios:

Activity ratios are measures of how well assets are used. Activity ratios - which are, for
the most part, turnover ratios - can be used to evaluate the benefits produced by specific
assets, such as inventory or accounts receivable. Or they can be used to evaluate the benefits
produced by all a company's assets collectively.

These measures help us gauge how effectively the company is at putting its investment to
work. A company will invest in assets – e.g., inventory or plant and equipment – and then
use these assets to generate revenues. The greater the turnover, the more effectively the
company is at producing a benefit from its investment in assets.

The most common turnover ratios are of following type:

i. Asset Turnover is a significant ratios since it shows the firm’s ability of generating
sales from all the financial resources committed to the firm.as this ratio increases,
there is more revenue generated per rupee of total investment in assets. The firm’s
ability to produce a large volume of sales on a small total asset basis an important part
of the firm’s overall performance in terms of profits. Idle or improperly used assets
increase the firm’s need for costly financing and expenses for maintenance and up
keep. As with the fixed assets, the total assets turnover should be cautiously used. In
denominator of this ratio assets are net of depreciation. Hence older the asset with a
lower book value may create a misleading impression of high turnover.

Some analysts exclude intangible assets, like goodwill, parents etc. while computing
the total assets turnover ratio. In such a case, the ratio is computed by dividing sales
by total tangible assets: Mathematically expressed as:
Total Asset Turn over=Sales or Revenue/Total Assets

ii. Day’s receivable is a significant ratio. It shows the firm’s ability to receive accounts
per average day sales. Mathematically expressed as:

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 Day’s Receivables=Account Receivable/Average Days Sales
Where, Average Days Sales=Revenue/365

3. Leverage Ratios

A company can finance its assets either with equity or debt. Financing through debt
involves risk because debt legally obligates the company to pay interest and to repay the
principal as promised. Equity financing does not obligate the company to pay anything --
dividends are paid at the discretion of the board of directors. There is always some risk,
which we refer to as business risk, inherent in any operating segment of a business. But how
a company chooses to finance its operations -- the particular mix of debt and equity -- may
add financial risk on top of business risk financial risk is the extent that debt financing is
used relative to equity.

Financial leverage ratios are used to assess how much financial risk the company has taken
on. There are two types of financial leverage ratios: component percentages and coverage
ratios. Component percentages compare a company's debt with either its total capital (debt
plus equity) or its equity capital. Coverage ratios reflect a company's ability to satisfy fixed
obligations, such as interest, principal repayment, or lease payments.

i. Debt to Capital Ratio indicates the proportion of assets that are financed with debt
(both short−term and long−term debt) this ratios measure the portions of the firm’s
assets financed by creditors.

Mathematically expressed as:

Debt Ratio=Total Liabilities or Debt/Total Assets or permanent Capital

Low ratio represents security to creditors in extending credit. High ratio represents a
greater risk to creditors and also to shareholder under adverse business conditions.
Very low ratio can worry shareholders as the company is not using debt to their best
advantage.

ii. Debt to equity ratio (D/E) indicates the relative uses of debt and equity as sources of
capital to finance the company's assets, evaluated using book values of the capital
sources. Mathematically expressed as:

Debt to Equity Ratio=Total Liabilities or Debt/ Total Owners’

It shows the extent to which debt financing has been used in business. A high ratio
shows that the claims of creditors are greater than those of owners. A very high ratio is
unfavorable from the firm’s point of view. This introduces inflexibility in the firm’s
operations due to the increasing interference and pressure from creditors.

13
 iii. Time interest earned ratio or Coverage ratio shows how many times the interest
charges are covered by funds that are ordinarily available to pay the interest charges.
The income-tax should be included in numerator because it is calculated after paying
the interest. This ratio indicates the extent to which the earning may fall without
causing any embarrassment to the firm regarding the payment of the interest charges.
So a higher ratio is desirable but too high ratio indicate that the firm is very
conservative in using debt and that it is not using credit to the best advantage of
shareholder. Mathematically expressed as:
Debt to Equity ratio=Total Liabilities or Debt/ Total Owners’ Equity

4. Liquidity ratio

Liquidity ratios provide a fast and easy-to-use measure of liquidity by linking the level of
cash and other current assets (liquid assets) to the firm’s current liabilities. Two commonly
used liquidity ratios are the Current Ratio and the Quick Ratio. It expresses a company's
ability to repay short-term creditors out of its total cash. The liquidity ratio is the result of
dividing the total cash by short-term borrowings. It shows the number of times short-term
liabilities are covered by cash. If the value is greater than 1.00, it means fully covered.

I. Current Ratio
It is defined as the division of current assets by current liabilities. It shows how well the
company is able to meet its short-term financial obligations; a higher ratio is better and
indicates the company has greater liquidity. Current assets are the most liquid of a firm’s
assets. It is given by following.
Current Ratio =Current assets/current liabilities

II. Quick Ratio

Because Inventory is the least liquid of current assets, subtracting it from Current Assets
and then dividing the result by Current Liabilities gives a better measure of the firm’s
capacity to convert liquid assets to cash to pay off short-term liabilities.
Quick ratio = (Cash + Accounts receivables)/Current liabilities

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Company Overview
SSB Hydropower Co. Ltd. is a renewable energy company. The company will principally
engaged in the promotion of hydropower sector of Nepal through private investment. As a first
step, the company will invest in medium hydro power project of 200 MW capacities. The
electricity will be connected to the national grid line through the NEA sub-station via a 132 KV
transmission line.
The construction Period of hydropower project will be six years. The cost of the project will be
approximately NRs 30 billion; taking per unit cost of the hydropower is NRs. 150,000 per KW of
production. The financing of the project is done through the mixture of debt from the consortium
of some financial institutions and equity from the promoters of the company in the ratio of 70:30.
The revenue generated by the project will be the income of the company. According to the
Power Purchase Agreement (PPA) between the company and the Nepal Electricity Authority, the
unit revenue generated from the sales of the electricity will be NRs 4.80 per unit in the wet
season (May to October) and NRs 8.40 per unit in the dry season (November to April). So,
calculating the power generated in dry and weight season, the average revenue per unit generated
electricity is Rs.6.14. The economic life of the project is 25 years.
Goal

The main objective of SSB Hydropower Co. Ltd. is to generate clean energy for the
sustainable development of Nepal. Nepal is rich in water resources but until now its potential
has not been much realized. So on one side Nepal is facing energy crisis and on the other hand,
the opportunity to improve our economy by utilizing hydropower is being lost. The company
has also the objective of empowering people and improving the economic standard and of the
local residents of the region where the power plant is to be constructed by giving the shares to
them.
Vision

The vision of the company is to become a leading hydropower generating and consulting
company promoting the investment of the Nepali people thus resulting to their economic
improvement and sustainable development

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Source of Financing

Financial Mix

Equity
30%

Loan
70%

Figure 2: Financial mix for Investment

Specifications and Assumptions

Table 1: Assumptions for financial analysis

Installed Capacity 200 MW

Assumptions 150,000 per kW
Total Project Cost (in Rupees) 30,000,000,000
Debt 21,000,000,000 70%
Equity 9,000,000,000 30%
Economic life years 25
Plant Efficiency 89%
Fixed Assets 95% 28,500,000,000
Working Capital 5% 1,500,000,000
Income tax 10% after 10 year of production for five year
20% after 15 year of production
Average Revenue NRs./kWh 6.10
(4.8 for wet and 8.4 for dry energy)
Operation & Maintenance Cost 2% of sales revenue
Cost of Sales 2% of revenue
Capital Expenditure 3% of revenue every year
Interest payment period 15 year

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Technical Specifications
Cost distribution of different components of Hydropower

Project Cost Summary

Working Capital
5%
Other
Infrastructures
5% Land
acquisition
Vehicals and 10%
workshop
Equipments
5%
Electrical

Equipments
10%

Electro-Mechanical
Items Civil Construction
10% 40%

Mechanical
Equpments
15%

Figure 3: Investment in different components of Hydropower.

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Table 2: Energy production per year calculation of SSBHCL
Rat
Gro
Design Combi Pow e
ss Outage Net Energy
Dischar Da Grav ned er Energy NRs Amount
Months Hea 5% with 5% outage
ge ys ity Efficie (M (kWh) . NRs.
d (kWh) (kWh)
(m3/s) ncy W) /K
(m)
Wh
Jan 60 31 150 9.81 0.89 79 58462776 2923139 55539637 8.40 466,532,952
Feb 60 29 150 9.81 0.89 79 54690984 2734549 51956435 8.40 436,434,052
Mar 60 31 150 9.81 0.89 79 58462776 2923139 55539637 8.40 466,532,952
Apr 60 30 150 9.81 0.89 79 56576880 2828844 53748036 8.40 451,483,502
May 75 31 150 9.81 0.89 98 73077912 3653896 69424016 4.80 333,235,279
June 153 30 150 9.81 0.89 200 144270000 7213500 137056500 4.80 657,871,200
July 153 31 150 9.81 0.89 200 149079000 7453950 141625050 4.80 679,800,240
Aug 153 30 150 9.81 0.89 200 144270000 7213500 137056500 4.80 657,871,200
Sep 153 31 150 9.81 0.89 200 149079000 7453950 141625050 4.80 679,800,240
Oct 120 30 150 9.81 0.89 157 113153040 5657652 107495388 4.80 515,977,862
Nov 120 31 150 9.81 0.89 157 116924808 5846240 111078568 8.40 933,059,968
Dec 120 30 150 9.81 0.89 157 113153040 5657652 107495388 8.40 902,961,259
1,231,200,2 61,560,01 7,181,560,707.
Total 365 1,169,640,205
16 1 84
Average 140.
6.14
Rate 46
Annual Revenue 7,181,560,708
Energy (GWh)
Installed M
200 Dry 435
Capacity W
Plant
0.67 Wet 734
Factor
Total 1170
Pro Forma Statements
Pro forma Income statements
19
20
Pro forma Balance Sheet

21
22
23
Pro Forma Cash Flow Statements

24
25
26
Analysis
Table 3: Some useful findings

PV 71,256,680,255
Levelized cost of electricity 3.96
NPV 41,256,680,255
IRR 29%
Cost of equity 20%
Interest rate 10%
Market Rate 12%
Discount rate (WACC) 13.56%
Profitability Index 1.38

Calculation of WACC

Table 4: Calculations of Weighted Average Cost of Capital

Corporate Tax
Financing Rate
0% 10% 20%
Debt 70% 12% 0.12 0.108 0.096
Equity 30% 20% 0.2 20% 20%
0.144 0.1356 0.1272
WACC
14.4% 13.6% 12.7%
There for, WACC = 14.4%*2/5+13.6*1/5+12.7*2/5
=13.56%
Sensitivity Analysis
We have done the sensitivity analysis by increasing the investment up to 14% to see the
variation in the NPV, IRR and levelized cost of energy. We have found that the project is
feasible up to 11% increase in investment.

Table 5: Sensitivity analysis of variation in Investment with NPV, IRR, and LCOE

SSB Hydropower Co. Ltd.

Sensitivity Analysis
Investments NPV IRR LCOE
30,000,000,000 41,256,680,255 29.4% 3.96
30,300,000,000 40,956,680,255 29.1% 3.99
30,603,000,000 40,347,650,255 28.9% 4.02
30,909,030,000 39,411,075,737 28.6% 4.05
31,218,120,300 38,118,016,493 28.4% 4.08
31,530,301,503 36,427,611,594 28.1% 4.10
31,845,604,518 34,284,922,045 27.9% 4.13
32,164,060,563 31,617,951,248 27.7% 4.16
32,485,701,169 28,333,616,747 27.4% 4.19
32,810,558,181 24,312,357,838 27.2% 4.23
33,138,663,762 19,400,943,051 27.0% 4.26
33,470,050,400 13,402,875,663 26.7% 4.29
33,804,750,904 6,065,565,153 26.5% 4.32
34,142,798,413 (2,936,889,787) 26.3% 4.35
34,484,226,397 (14,026,915,296) 26.1% 4.38

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Monte Carlo Simulation
We have done the simulation with input variables Installed capacity and revenue considering
triangular distribution and normal distribution respectively to forecast the Net Present Value. We
have found that there is a 100% certainty to obtain the calculated NPV of NRs. 41,256,680,255
but there is only 95% certainty if we want to obtain NPV of 45 billion.

Figure 4: Monte Carlo Simulation for 45 billion of NPV

Figure 5: Monte Carlo Simulation for calculated NPV

29
Financial Ratios
Table 6: Financial ratio calculations

Years
Financial Ratios
1 2 3 4 5 6 7 8 9 10
Profitability Ratio
Net Profit Margin 47% 52% 57% 61% 65% 87% 87% 86% 85% 84%
Return on Asset 0.10 0.11 0.12 0.13 0.11 0.14 0.14 0.14 0.14 0.13
Return on Equity 0.37 0.44 0.51 0.55 0.29 0.40 0.42 0.44 0.42 0.44
Activity Ratios
Asset turnover 0.22 0.22 0.21 0.21 0.17 0.16 0.16 0.16 0.16 0.16
Average days sales (in
20 21 22 23 25 26 28 30 31 33
million)
Days' receivables 60 60 60 60 60 60 60 60 60 60
Leverage Ratios
Debt ratio 0.64 0.57 0.51 0.45 0.33 0.28 0.24 0.21 0.18 0.15
Debt to Equity ratio 1.8 1.4 1.0 0.8 0.5 0.4 0.3 0.3 0.2 0.2
Time-interest-earned
2.60 2.95 3.34 3.78 4.29 5.94 6.55 7.29 8.22 9.44
ratio
Average operating
857 908 963 1,020 1,082 1,147 1,215 1,288 1,366 1,448
expenses (in thousands)

Days payable 60 60 60 60 60 60 60 60 60 60
Liquidity Ratios
Current ratio 12 19 25 31 27 39 48 57 65 53
Investment ratio
Net worth per share 361 388 420 428 269 279 299 320 311 331
Dividend pay-out ratio 20% 20% 20% 40% 38% 42% 40% 40% 61% 40%
Dividend Per Share 7.5 8.8 10.2 21.8 11.3 16.7 16.8 17.6 25.6 17.7
Earnings per Share 37 44 51 55 29 40 42 44 42 44

30
Conclusion
This study is very fruitful to estimate the pro forma statements of the SSB Hydropower Co. Ltd.
(SSBHCL). We have projected the pro forma income statements, balance sheet and cash flow
statements for 25 years of project life. The project is very much feasible with Net Present Value
41 billion, IRR 29%, Profitability Index of 1.38.We have found that the company will operate in
very efficient way from projected financial ratios.

We have done the simulation with input variables Installed capacity and revenue considering
triangular distribution and normal distribution respectively to forecast the Net Present Value. We
have found that there is a 100% certainty to obtain the calculated NPV of NRs. 41,256,680,255
but there is only 95% certainty if we want to obtain NPV of 45 billion.
th
From the beginning of the 18 year we will invest in another 900 MW project for eight year of
construction period.

31
References
CHCL. (2013). Chilime Hydropower Company Limited, 17th Annual Report.

Panday, I. M. (2010). Financial Management (10th ed.).

(2011). Feasibility study of Nyadi Hydropower. ButwalPpower Pompany.

Atrill, P. (2002). Financial Analysis for Non-specialists. Prentice Hall.

Koirala, N., & Thapa, K. (2064). Corporate Financial Management. Kathmandu: khanal books
publishers & distributors.

NEA. (2013). A year in Review-Fiscal Year 2012/13.

Simkins, B. J., & Simkins, R. E. (2013). Energy Finance and Economics. New Jersey:
John Wiley & Sons, Inc.

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