Mandu Hydropower Share Analysis & Valuation
1. Executive Summary
MANDU Hydropower Company Limited (NEPSE: MANDU) owns and operates the 32 MW Bagmati Small Hydropower Project, a run-of-river plant located on the Bagmati River in Makawanpur District, approximately 44 km south of Kathmandu. The project began commercial operation in April 2019, and the company was listed on the Nepal Stock Exchange (NEPSE) in October 2023.
The last two years have been the most significant period in the company's history. In September 2024, severe flooding across the Bagmati basin submerged the powerhouse and damaged key intake structures, forcing the plant to suspend electricity generation. This resulted in a sharp decline in financial performance during the year.
Instead of restoring the original facility, the company upgraded the project's capacity from 22 MW to 32 MW during reconstruction. The expanded plant entered commercial operation in early 2026, and the recovery has been reflected in FY 2082/83, with the company reporting record earnings per share (EPS) of NPR 23.36.
This report also evaluates three hydrological factors often associated with the project: the Melamchi Water Supply Project, Dhap Dam, and the Kulekhani reservoir. Among these, the Melamchi linkage is the strongest, as it is directly supported by the company's independent credit rating reports. The potential benefit from Dhap Dam is technically reasonable but has not been specifically confirmed by the company. Meanwhile, MANDU's intake is located only about 100 metres downstream of the confluence of the Kulekhani stream and the Bagmati River, making the connection geographically significant. However, the clearest evidence of this relationship was the September 2024 flood, when the proximity increased flood risk rather than operational benefit. A detailed assessment is presented in Section 4.
For valuation, this report applies both Discounted Cash Flow (DCF) and Relative Valuation methodologies. The DCF model, based on projected cash flows, regulated tariffs, operating costs, and capital structure, estimates an intrinsic value of NPR 365–552 per share across three scenarios. In contrast, a peer comparison using 30 NEPSE-listed hydropower companies indicates a fair value of approximately NPR 820 per share. The difference reflects the nature of the two approaches: DCF values the company's own long-term cash-generating ability under a regulated tariff and finite license period, while relative valuation captures how Nepal's hydropower sector is currently priced by the market. The assumptions and detailed calculations are discussed in Sections 7–9.
2. Company Overview and Project Profile
MANDU Hydropower Limited was established to develop hydropower generation on the Bagmati River. The project originated in 2006, and the company was formally incorporated on 15 April 2012 as a joint Nepali-Chinese venture. Sichuan Hechuan Investment Co. Ltd. has held around 43.12% of the company's share capital. In contrast, the remaining ownership is held by Nepali promoters, including Maheshwor Prakash Shrestha, the Pande family, Himalayan Infrastructure Ltd., Lotus Investment Pvt. Ltd., and public shareholders.
The company was listed on the Nepal Stock Exchange (NEPSE) on 10 October 2023 through an initial public offering of approximately 1.36 million shares, representing about 10% of its paid-up capital. The shares were issued at NPR 206 per share, comprising an NPR 100 face value and an NPR 106 premium. The promoter lock-in period expired on 10 September 2026, increasing the potential supply of tradable shares in the secondary market. However, MANDU still has a relatively small free float, and its average daily trading volume has remained in the low thousands of shares, indicating limited liquidity.
The company's only operating asset is the 32 MW Bagmati Small Hydropower Project. As a single-asset hydropower company, all of MANDU's revenue, cash flow, and earnings are generated from this project, making its financial performance highly dependent on the plant's operational reliability and river flow conditions.
2.1 Project Specification
3. Revenue Model and Framework
3.1 Tariff Structure
MANDU sells 100% of its electricity to the Nepal Electricity Authority (NEA) under a long-term take-or-pay Power Purchase Agreement (PPA). The tariff is divided into dry-season and wet-season rates, reflecting the higher value of electricity during periods of lower river flow. At the time of commercial operation, the tariff was approximately NPR 8.40/kWh for the dry season and NPR 4.80/kWh for the wet season. Both rates increased by around 3% annually for eight years, reaching approximately NPR 10.42/kWh and NPR 5.95/kWh, respectively.
The annual escalation period has now ended. As a result, the tariff will remain fixed for the rest of the PPA term, meaning future revenue growth depends primarily on higher electricity generation rather than higher selling prices.
3.1.1 Tariff Escalation Table
Source: Prospectus of Mandu Hydropower Limited (Link)
3.2 Royalty Obligations
Under Nepal's hydropower regulations, generation companies pay royalties based on both installed capacity and energy sales. Royalty rates increase significantly after the first 15 years of commercial operation.
For MANDU, this step-up will occur in FY2090/91, making higher royalty expenses a predictable future cost rather than an uncertain risk. The increased royalty has been incorporated into the DCF valuation model.
3.3 Tax Framework
Nepal's hydropower sector benefits from a phased tax incentive designed to support long-term infrastructure investment. MANDU receives a full income tax exemption for its first 10 years of commercial operation, followed by a 50% tax exemption for the next 5 years. As a listed hydropower company, it also qualifies for the ongoing tax rebate available to NEPSE-listed generators after the holiday period.
Accordingly, the valuation model applies a phased effective tax rate, beginning at 0% in the early forecast years and gradually increasing toward a long-run effective rate of 15%.
4. Hydrological Linkages: Kulekhani, Dhap Dam, and the Melamchi Project
The Bagmati Small Hydropower Project depends entirely on the natural flow of the Bagmati River. As a result, three upstream water infrastructure projects are often discussed in relation to MANDU's long-term hydrology: Kulekhani Reservoir, Dhap Dam, and the Melamchi Water Supply Project. Their relevance, however, differs significantly.
4.1 Kulekhani Reservoir
MANDU's intake is located only 100 metres downstream of the confluence of the Kulekhani Khola and the Bagmati River at Dobhan. The project is also connected to the national grid through the Kulekhani-I Substation, making the two facilities closely linked geographically.
Despite this proximity, Kulekhani does not provide a regular water supply benefit to MANDU. Water stored in the Kulekhani reservoir is diverted through tunnels into the Rapti River basin for hydropower generation rather than being released back into the Bagmati under normal operations.
The most significant interaction between the two projects occurred during the September 2024 flood. After exceptional rainfall filled the Kulekhani reservoir, NEA opened the spillway gates for flood control, contributing to the downstream flooding that submerged MANDU's powerhouse. Based on available company disclosures and public records, the Kulekhani linkage is best viewed as a flood-risk factor rather than a source of additional generation water.
4.2 Dhap Dam
Dhap Dam is located in the upper Bagmati watershed within Shivapuri Nagarjun National Park. Its primary purpose is to store monsoon runoff and release water into the Bagmati during the dry season to improve river flow, environmental quality, and cultural water use.
Since MANDU operates further downstream on the same river system, these dry-season releases could increase water availability during the period when electricity tariffs are highest. However, no published source has quantified the impact specifically for MANDU. Therefore, the Dhap Dam should be regarded as a potential positive hydrological factor, although its financial contribution remains unverified.
4.3 Melamchi Water Supply Project
The Melamchi Water Supply Project transfers water from the Melamchi River to Sundarijal in the upper Bagmati basin through a tunnel system. While its primary objective is to supply drinking water to Kathmandu Valley, part of the transferred water enters the Bagmati River through river restoration and tunnel-flushing releases.
Among the three projects, this is the strongest documented hydrological linkage. MANDU's independent credit rating reports published by ICRA Nepal identify Melamchi's contribution to the Bagmati basin as a positive factor for long-term water availability and recognize the project's continued rehabilitation as supportive of MANDU's operating environment.
4.4 Summary Assessment
Overall, MANDU operates within a river system influenced by multiple public water infrastructure projects. The Melamchi Project has the strongest documented positive impact, Dhap Dam represents a plausible but unquantified benefit, and Kulekhani Reservoir is more significant for its downstream flood exposure than for enhancing electricity generation.
5. Recent Developments: September 2024 Flood and Capacity Expansion
The most significant event in MANDU's recent history was the September 2024 flood, when extreme rainfall across the Kathmandu Valley and the Bagmati basin triggered widespread flooding and landslides. More than a dozen hydropower projects were affected, and MANDU suffered severe damage after its powerhouse was submerged and its intake structures were damaged, forcing a complete suspension of electricity generation.
The impact was immediately reflected in the company's financial performance. In FY 2081/82, revenue declined to NPR 204.7 million from NPR 734.1 million in the previous year, representing a fall of more than 70%. Although the company reported NPR 61.9 million in net profit, this was largely supported by NPR 588 million in other income, primarily related to insurance and compensation. Generation efficiency also dropped to 79% of contracted energy, well below the normal range of 88–105%.
5.1 Financial Impact of the Flood
Rather than rebuilding the original 22 MW plant, MANDU used the reconstruction period to expand the project's capacity. The company secured an amended generation license and revised PPA, increasing installed capacity to 32 MW. The upgraded plant entered commercial operation in April 2026, representing a 45% increase in generating capacity.
The expansion also increased the project's contracted annual energy from approximately 128 GWh to 185 GWh, with a stronger emphasis on dry-season generation. Dry-season contracted energy increased by about 69%, compared with 40% in the wet season, improving the project's revenue potential because dry-season electricity earns a significantly higher tariff.
5.2 Capacity Expansion
The recovery is already evident in FY 2082/83. Revenue rebounded to approximately NPR 795 million, and the company reported a record EPS of NPR 23.36, reflecting the restoration of normal operations and a partial-year contribution from the expanded 32 MW plant. FY 2083/84 will be the first full fiscal year to capture the upgraded plant's complete earning capacity.
6. Financial Performance
Since commencing operations in 2019, the company has demonstrated a relatively stable earnings profile, with the only major disruption occurring during the September 2024 flood. Following the completion of the 32 MW expansion, FY 2082/83 marked the strongest financial performance in the company's history.
6.1 Income Statement Summary
Excluding the flood year, MANDU's revenue increased from NPR 547.6 million in FY 2076/77 to NPR 794.9 million in FY 2082/83, representing a compound annual growth rate (CAGR) of approximately 6.4%. Over the same period, net profit expanded at around 18% annually, supported by improved operating leverage as generation increased.
Return on equity has generally remained within the 13–14% range, reflecting the predictable earnings characteristics of a regulated hydropower business. Profitability, however, remains sensitive to annual generation because depreciation, interest expense, and royalty payments constitute a significant fixed cost base.
6.2 Profitability Analysis (DuPont)
The flood year illustrates the company's earnings dynamics clearly. Although net margin remained relatively resilient due to insurance-related income, asset turnover collapsed as electricity generation was suspended, resulting in a sharp decline in ROE. Financial leverage had been declining gradually as project debt was repaid, before increasing again with new borrowing for the 32 MW capacity expansion.
From FY 2076/77 to FY 2080/81, MANDU consistently improved profitability. Net margin increased from 21.4% to 36.7%, while asset turnover remained relatively strong at around 18%, allowing ROE to rise from 9.4% to a peak of 17.7% in FY 2078/79. During the same period, financial leverage gradually declined as project debt was repaid, indicating that higher returns were driven by better operations rather than increased borrowing.
The flood year (FY 2081/82) demonstrates the importance of asset turnover. Although net margin remained at 30.2% because insurance and compensation income supported earnings, asset turnover collapsed from 18.0% to 4.3% as electricity generation stopped. As a result, ROE fell sharply to 3.25%, despite margins appearing relatively healthy. This shows that MANDU's profitability ultimately depends on generating electricity rather than maintaining accounting income.
In FY 2082/83, the company recovered strongly following the commissioning of the 32 MW plant. Net margin reached a record 40.1%, asset turnover improved to 15.2%, and ROE rebounded to 14.3%. Financial leverage increased slightly to 2.36x due to expansion-related borrowing, but remained below historical levels, suggesting the recovery was primarily driven by improved operating performance. The DuPont analysis indicates that asset turnover is the most sensitive driver of MANDU's ROE. Because depreciation, interest expense, and royalties are largely fixed, any disruption to electricity generation has a disproportionate impact on returns. Conversely, higher plant utilization and increased generation from the 32 MW expansion are expected to support stronger ROE over the long term.
6.3 Balance Sheet and Debt Profile
As of FY 2082/83, MANDU reported total assets of NPR 5.24 billion, financed by NPR 2.22 billion of equity and NPR 2.92 billion of debt. The resulting debt-to-equity ratio of 1.31x is typical for a capital-intensive hydropower project, although it leaves the company exposed to periods of weak generation.ICRA Nepal assigns MANDU an issuer rating of [ICRANP-IR] BBB-, indicating a moderate degree of safety in meeting financial obligations. The rating highlights several key considerations, including single-project concentration, silting risk in the Bagmati River, the absence of a deemed generation clause in the PPA, and relatively tight liquidity.
6.4 Dividend History
MANDU has maintained a consistent dividend record since achieving sustainable profitability, distributing either cash dividends or bonus shares in every profitable fiscal year.
Source: 14th & 15th Annual Report (Link)
The dividend history demonstrates management's willingness to return capital to shareholders while continuing to invest in long-term capacity expansion.
7. Valuation I: Discounted Cash Flow (DCF)
7.1 Valuation Methodology
The Discounted Cash Flow (DCF) method estimates the intrinsic value of MANDU by calculating the present value of its future Free Cash Flow to the Firm (FCFF). Since the company's cash flows are generated under a long-term Power Purchase Agreement (PPA), DCF is the most appropriate valuation approach for measuring the project's long-term earning capacity.
All projected cash flows are discounted using the Weighted Average Cost of Capital (WACC), which reflects the required return of both debt and equity investors.
7.2 Cost of Capital Assumptions
The cost of equity is estimated using the Capital Asset Pricing Model (CAPM).
7.3 Forecast Assumptions
The valuation projects FCFF over the remaining 23-year generation license, covering FY2083/84 to FY2105/06. Revenue is based on the plant's 32 MW installed capacity and contracted PPA energy, with scenario-specific adjustments for hydrology and plant availability. The key operating assumptions are summarized below.
- Revenue from sale of electricity is projected based on annual contracted energy under the Power Purchase Agreement (PPA). Generation efficiency is assumed at 100% for the Best Case, 85% for the Base Case, and 70% for the Worst Case, reflecting the plant's historical operating performance. Effective energy generated is allocated to the contractual 8-month dry and 4-month wet energy mix, and monthly revenue is derived using the respective NEA PPA tariffs.
- Other Income assumed to be 0.003% of revenue according to the historic median.
- Operation and Maintenance Expenses are calculated as follows: NPR 100 per kW till FY2090 and will be NPR 1000 per kW until the license period, plus 2% of revenue till 2090 and will be 10% of revenue until the license period.
- Administrative Expenses are assumed at 3% of revenue according to historic median.
- Depreciation is projected using the straight-line method. The depreciable asset base is estimated from the project's construction cost of NPR 181 million per MW, resulting in a total capitalized cost of NPR 5.792 billion for the 32 MW plant. This cost is depreciated evenly over the remaining 31-year concession life, resulting in an annual depreciation expense of approximately NPR 186.8 million.
- Capital Expenditure (CAPEx): Maintenance capital expenditure is projected at 0.5% of the gross construction cost (NPR 5.792 billion) throughout the explicit forecast period. The assumption reflects recurring expenditures required to maintain generation efficiency and operational reliability, excluding major expansionary investments.
- Tax Rate: MANDU is assumed to benefit from a 100% income tax exemption until FY 2084/85, resulting in a 0% effective tax rate during this period. Following the expiry of the tax holiday, the company is assumed to receive a 50% tax rebate, resulting in an effective tax rate of 10% from FY 2085/86 to FY 2089/90. Thereafter, the tax rate is assumed to increase to 15% from FY 2090/91 onward, reflecting the preferential corporate tax rate applicable to listed hydropower companies in Nepal.
- Terminal value represents the continuing value of Mandu Hydropower Ltd. as a going concern through reinvestment into future energy assets after the expiry of the existing BOOT project.
- Terminal Growth Rate Assumed 4% for the best case, 3.5% for the base case, and 3% for the worst case.
7.4 Scenario Analysis
Three scenarios are constructed by varying revenue realization and terminal growth.
7.5 DCF Valuation Results
The DCF valuation produces an intrinsic value range of NPR 331.48–502.18 per share, with a base case value of NPR 414.63. The wide range reflects different assumptions regarding hydrology, plant utilization, and long-term growth rather than tariff changes, as the PPA tariff remains fixed for the remainder of the project. At the current market price of NPR 697 (as of 16th Sep. 2026), the shares trade above the intrinsic value generated under all three DCF scenarios. This suggests that the market is pricing MANDU more optimistically than its regulated long-term cash flow alone would imply, making a comparison with sector-based relative valuation essential in the following section.
8. Valuation II: Relative Valuation
8.1 Methodology
In addition to DCF, MANDU is valued using a relative valuation approach. This method compares the company's trading multiples with similar listed hydropower companies on the Nepal Stock Exchange (NEPSE).
For the relative valuation, MANDU is compared with 30 hydropower companies listed on the Nepal Stock Exchange (NEPSE) with paid-up capital ranging from NPR 1 billion to NPR 2 billion. This peer group was selected to ensure comparability in terms of company size, capital structure, and operating characteristics. Valuation multiples are derived from the peer group to estimate MANDU's relative market value. Two valuation multiples are used:
- Price-to-Earnings (P/E): Measures how much investors are willing to pay for each rupee of earnings.
- Price-to-Book (P/B): Measures the market value of equity relative to its book value.
The peer median is used instead of the average to reduce the influence of extreme valuations.
The relative valuation indicates that MANDU appears modestly undervalued compared with its listed hydropower peers. Using the median valuation multiples of 42.36x P/E and 3.78x P/B, MANDU's implied fair value is NPR 802.89 per share, compared with its current market price of NPR 697. This suggests a potential upside of approximately 15%.
The market appears to be valuing MANDU differently across the two multiples. On an earnings basis, the company trades at only 29.84x P/E, substantially below the peer median despite generating the highest EPS (NPR 23.36) among all profitable companies in the selected peer group. This implies that MANDU's earnings are priced more conservatively than comparable hydropower companies.
On the other hand, MANDU trades at 4.28x P/B, slightly above the peer median of 3.78x. The premium suggests that investors already recognize the quality of its underlying asset, recent 32 MW capacity expansion, and stronger balance sheet, even though its earnings multiple remains relatively low.
Within the 30-company peer universe, 11 companies are classified as underpriced and 19 as overpriced based on their blended P/E and P/B valuation relative to market price. MANDU falls within the underpriced group, reinforcing the view that its current valuation is attractive relative to comparable listed hydropower companies.
In conclusion, the relative valuation suggests that MANDU's strong profitability is not fully reflected in its current share price. While the stock already commands a modest premium on book value, its discounted earnings multiple results in a blended fair value of NPR 802.89, indicating approximately 15% upside from the current market price.
9. Reconciling the Two Valuation Approaches
The two valuation methods produce materially different conclusions. The DCF estimates an intrinsic value of NPR 332–502 per share, whereas the relative valuation indicates a fair value of approximately NPR 803. This difference reflects the nature of each methodology rather than a modeling inconsistency.
The DCF values MANDU based on its own contractual economics. It assumes a fixed PPA tariff, limited annual generation, higher royalty payments after 2034, and a generation license that expires in 2049. As a result, the valuation is driven by the project's long-term cash-generating ability and resembles the valuation of a regulated infrastructure asset.
The relative valuation, by contrast, reflects how investors currently price comparable hydropower companies on NEPSE. It captures prevailing market sentiment, sector-wide scarcity of operating hydropower assets, and expectations surrounding MANDU's recent 32 MW expansion and stronger dry-season generation profile.
Overall, the current market price of NPR 697 lies between the DCF and relative valuation estimates. Investors who place greater weight on contracted cash flows may view the DCF as more representative, while those emphasizing market pricing and sector multiples may assign greater importance to the relative valuation.
10. Conclusion
MANDU Hydropower has emerged from the most challenging period in its operating history with a materially stronger asset base. The successful reconstruction of the Bagmati Small Hydropower Project and its expansion from 22 MW to 32 MW have significantly increased contracted annual energy, particularly during the higher-tariff dry season, improving the company's long-term earnings potential.
From a fundamental perspective, MANDU is a high-quality single-asset, run-of-river hydropower company with predictable revenue under a long-term NEA Power Purchase Agreement. However, its cash flows remain constrained by a fixed tariff, rising royalty obligations after 2034, and a generation license that expires in 2049. These structural characteristics explain why the Discounted Cash Flow (DCF) valuation produces an intrinsic value range of NPR 332–502 per share, below the current market price.
In contrast, the Relative Valuation suggests that MANDU is modestly undervalued within Nepal's listed hydropower sector. The company generates the highest EPS (NPR 23.36) among its profitable peers while trading at a P/E of 29.84x, well below the peer median of 42.36x. Applying median sector multiples results in a blended fair value of NPR 802.89 per share, implying approximately 15% upside from the current market price.
The divergence between the two valuation methods is the central conclusion of this report. The DCF reflects MANDU's contracted cash-flow economics, while the relative valuation captures how the NEPSE hydropower sector is currently priced. As a result, the current market price of NPR 697 appears to be supported more by sector valuation than by the project's standalone discounted cash flows.
It is important to note that the DCF assumptions are intentionally conservative because this report is prepared from a buy-side perspective, where the objective is to estimate intrinsic value rather than justify a higher target price. Historically, MANDU has achieved generation efficiency ranging from 88% to above 100% of contracted energy in normal operating years. Yet, the valuation assumes 90% in the Best Case, 80% in the Base Case, and 70% in the Worst Case. As a result, the DCF is likely to understate upside potential if the upgraded 32 MW plant consistently generates at or above its historical operating level.
Overall, MANDU offers strong operating fundamentals and improved earnings prospects, but investors should balance these strengths against hydrology risk, single-project concentration, leverage, and the finite concession life. The stock appears relatively attractive within its peer group, although its market valuation already exceeds the intrinsic value implied by its long-term contracted cash flows.
Disclaimer & Disclosure
Disclaimer
This article is provided for informational and educational purposes only and should not be considered personalized investment advice, a recommendation, or an offer or solicitation to buy or sell any security.
The analysis of Mandu Hydropower Limited (NEPSE: MANDU) is based on publicly available financial information and the author's own analysis and valuation models. Financial figures, ratios, forecasts, fair-value estimates, and scenario analyses are based on assumptions that may change over time and may not materialize as expected.
The estimated fair values presented in this analysis are model outputs, not guaranteed price targets. Valuation results can vary significantly depending on assumptions relating to earnings growth, loan growth, credit costs, cost of equity, terminal growth, interest rates, asset quality, and other factors.
Past financial performance is not necessarily indicative of future results. Investors should conduct their own research and due diligence and consider their individual financial circumstances, investment objectives, and risk tolerance before making any investment decision.
While reasonable care has been taken to ensure that the information presented is accurate and reliable, no representation or warranty is made regarding its completeness, accuracy, or timeliness. The author and publisher accept no responsibility for any investment losses or other consequences arising from reliance on the information contained in this article.
Disclosure
This analysis represents the author's independent research and interpretation of Mandu Hydropower's publicly available financial information. The valuation conclusions are based on the methodologies and assumptions described in the article and should not be interpreted as certainty about the future performance or market price of MANDU.
Any views, estimates, or conclusions expressed are those of the author at the time of publication and may change as new financial information, market conditions, regulatory developments, or company-specific factors emerge.
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