Nepal's IPO market has seen a wide range of sectors entering the scene hydropower, microfinance, micro-insurance, and even pharmaceutical companies. Now, it's the renewable energy sector's turn, as Pure Energy Limited prepares to issue its Initial Public Offering (IPO) to the general public starting Chaitra 28.

The company is offering 11,95,200 shares to the general public at a face value of NPR 100 per share. This issue is part of a larger public offering totaling 1.6 million shares, which represents 20% of the company's issued capital of NPR 80 crore. Prior to this, 2% of the shares (160,000 units) were already issued to locals of Banke district the project-affected area.

The remaining 18% of the shares are being divided as follows:

• 10% (144,000 units) for Nepal is working abroad
• 5% (72,000 units) for mutual funds
• 2% (28,800 units) for company employees
• 83% (1,195,200 units) for the general public

The company has received a [CARE-NP BB+] rating from ICRA Nepal, which indicates a moderate risk of default regarding timely servicing of financial obligations. While not an exceptional rating, it is not uncommon for new infrastructure-focused companies in capital-intensive industries.

Understanding the Business Model

Pure Energy Limited is a solar energy company registered in 2075 under the Company Act 2063. Its corporate office is located in Soltimod, Kathmandu, while its solar plant is based in Khajura Gaunpalika, Banke. The company is backed by eight key founding shareholders and has associations with Golyan Group and Renergo Developers Pvt. Ltd.

In just two years of its establishment, the company received two approvals for a 10 MW solar photovoltaic plant (Block 1 and Block 2). It has signed a 20 MW power purchase agreement (PPA) with the Nepal Electricity Authority (NEA), and has been operating as a public limited company since Ashad 2079. It began electricity production commercially from Baisakh 2080.

Sector Outlook: Why Solar?

Pure Energy operates in the renewable energy sector, specifically solar. While Nepal's energy sector has long been dominated by hydropower, the government has recently been encouraging diversification through clean energy alternatives. NEA has started offering PPAs and easier grid access to solar projects, creating a favorable environment.

Unlike hydropower, solar does not require massive infrastructure or long construction timelines. It also avoids seasonal dependency, making it a more stable power source. Investor interest is slowly shifting toward solar as a viable alternative, and Pure Energy's IPO could signal a long-term transition in Nepal's energy mix.

NEPSE does not currently have a dedicated 'Renewable Energy' sector. Companies like Pure Energy fall under the 'Others' category, which includes businesses that do not yet fit into traditional sector classifications. As the clean energy space grows, there may be a reclassification in the future.

Financial Health & Debt Concerns

As of FY 2080/81, the company has a paid-up capital of NPR 64 crore, which will increase to NPR 80 crore post-IPO. The company reported a net loss of NPR 1.75 crore in FY 2080/81 but has projected a profit of NPR 4.21 crore for the upcoming fiscal year.

Its long-term debt stands at NPR 1.59 arba (NPR 1.59 billion). A large portion of this debt is related to plant construction and PPA implementation. While the figure may seem high, this debt-heavy structure is a common practice in infrastructure and energy sectors during the early development phase. With projected revenues and profit margins, the company is in a position to service and gradually reduce this debt.

By the end of Poush 2080, the company had already recorded a profit of NPR 24.28 lakh. Net worth per share is projected to rise from NPR 96.45 in FY 2080/81 to NPR 101.43 in FY 2081/82, and further to NPR 120.49 by FY 2083/84. Earnings per share (EPS) is also projected to grow from NPR 2.75 in FY 2080/81 to NPR 9.86 by FY 2083/84.

For beginner investors: EPS (Earnings Per Share) tells you how much profit the company makes for each share you own.

                                       Net worth per share reflects the company's total value divided among its shares helpful in evaluating long-term growth.

Additionally, the company has secured plant insurance worth NPR 2 arba from Oriental Insurance and vehicle insurance from Sanima GIC, indicating risk mitigation efforts.

Comparative Context

Compared to recent IPOs in the energy sector especially hydropowers Pure Energy’s issue size and business model are modest but forward-looking. Hydropower IPOs tend to involve larger projects with longer gestation periods, whereas solar projects can begin operations faster and with less seasonal uncertainty. Also, many hydropower IPOs in recent years have yielded attractive listing gains, which has contributed to strong retail investor demand across the energy segment. This IPO represents the first few steps toward diversification within Nepal's power market.

Valuation and Investment Decision

Based on the current net worth of NPR 96.45 per share, NEPSE guidelines suggest an opening range of NPR 96.45 to NPR 289.35. This range makes the IPO reasonably valued, especially if the company meets its projected growth.

So, should you apply?

IPO performance in Nepal has historically yielded positive returns, particularly in the energy sector. Given Pure Energy's solar focus, government backing of renewables, and its financial trajectory, this IPO offers a balanced risk-return profile. For retail investors, applying at the minimum 10-unit mark is advisable, considering the high chance of oversubscription.

Key Takeaways

• Sector Shift: One of the first solar-focused companies to go public in Nepal.
• Moderate Risk: BB+ credit rating and early-stage losses, but improving financials.
• Debt Strategy: High debt linked to plant development is common model in energy projects.
• Reasonable Valuation: Opening price range reflects actual net worth.

Conclusion

Pure Energy Limited's IPO presents an entry point into Nepal's growing solar energy landscape. While the company carries typical early-stage risks including moderate credit ratings and significant debt its strategic positioning and government-backed PPA make it an interesting long-term play. For investors willing to bet on Nepal's clean energy future, this might be a timely opportunity.