A group presentation onCalculation of Expected Return of

Chilime Hydropower Project2009/2010

Group Members:•Anmol Pasa Shrestha•Chhitiz Shrestha•Pooja Shah•Rashmita Regmi•Sarala Bogati•Sunita Shrestha

Introduction• Constructed and owned by Chilime Hydropower

Company Limited• located at 133 km north of Kathmandu at the

right bank of Bhotekoshi River in Rasuwa District• installed capacity of 22.1 MW• Delivers power via 38 km long 66 kV single

circuit transmission line at Trisuli Power House Switchyard

• The electricity generated from the power plant is purchased by NEA and evacuated as per the PPA made on June 25, 1997

Introduction

•First amendment made on December 10, 2007

•Annual deemed energy salable to NEA is 132.918 GWh

•The plant has started its commercial generation from 8th Bhadra 2060 (24th August 2003).

Introduction

Purpose of the study• Financial analysis of Chilime Hydropower

Project• Calculation of financial aspects like Variance,

Covariance, Beta and Expected rate of return• Interpretation of the data and findings• Learn the actual approach of Beta and how is it

used by people • Understanding the practical aspect of Capital

Asset Pricing Model• Overall Profitability of Chilime Hydropower

Project

Methodology

•Collected data from NEPSE index and data provided by our finance instructor, Mr. Sarthak Karki

•Used MS Excel to calculate Variance, Covariance, Beta and the Rate of return

•Collected relevant information abut the data and the data calculation techniques from the internet

Calculation (Market index)

•First of all the monthly market data were collected from July 2009 to June 2010.

•Then the average for each month was tabulated

Date Market Index

Jul-09 8715.8

Aug-09 8314.76

Sep-09 7907.95

Oct-09 7689.16

Nov-09 7654.89

Dec-09 7411.35

Jan-10 7286.97

Feb-10 12635.05

Mar-10 7890.53

Apr-10 7101.47

May-10 7406.08

Jun-10 7718

Calculation (Stock Price Index)

•The monthly stock price information was collected from relevant source

•Then its average stock price per month was calculated

Date Stock Price Index

9-Jul 1160

9-Aug 1109

9-Sep 1063

9-Oct 1053

9-Nov 1022

9-Dec 1014

10-Jan 996

10-Feb 994

10-Mar 920

10-Apr 847

10-May 962

10-Jun 965

Calculation (Covariance, Variance and Beta)• The Market index and Stock price index were

inserted in the preset formula in MS Excel• Excel helped to tabulate the Covariance,

Variance and Beta• The covariance of the given data was

0.004468318• The Variance of the tabulated data set was

0.049745347• The Beta calculated from the given data set

0.089824

Calculation (Covariance, Variance and Beta)

Year Month

Market

index

ln(Market

index)

Market

returns

Stock

price

ln(Stock

price)

Stock

returns

2009 July 8715.8 9.072892749 -4.71% 1160 7.056175284 -4.50%

2009 August 8314.76 9.025787528 -5.02% 1109 7.011213987 -4.24%

2009 September 7907.95 8.975623862 -2.81% 1063 6.968850378 -0.95%

2009 October 7689.16 8.947566824 -0.45% 1053 6.959398512 -2.99%

2009 November 7654.89 8.943099938 -3.23% 1022 6.929516771 -0.79%

2009 December 7411.35 8.910767888 -1.69% 1014 6.921658184 -1.79%

2010 January 7286.97 8.893843101 55.04% 996 6.903747258 -0.20%

2010 February 12635.05 9.444229977 -47.08% 994 6.901737207 -7.74%

2010 March 7890.53 8.973418585 -10.54% 920 6.82437367 -8.27%

2010 April 7101.47 8.868057084 4.20% 847 6.741700695 12.73%

2010 May 7406.08 8.910056563 4.13% 962 6.869014451 0.31%

2010 June 7718 8.951310542 4.13% 965 6.872128101 0.31%

Calculation (Expected Rate of Return)

•To calculate the Expected rate of return, the risk free rates of T-bills was retrieved

•Averages were calculated for the relevant months

•Used Rf+ß(Rm-Rf) to calculate expected return

• ß and Rm pre calculated and used in the formula

Calculation (Expected Rate of Return)Date Rf Rm Rm-Rf ß(Rm-Rf) Rf+ß(Rm-Rf)

Jul-09 5.14 -4.71 -0.09853 -0.00885 4.25754845Aug-09 2.05 -5.02 -0.07068 -0.00635 1.41269715Sep-09 2.38 -2.81 -0.05193 -0.00466 1.91610965Oct-09 3.35 -0.45 -0.03796 -0.00341 3.00504328Nov-09 5.57 -3.23 -0.08795 -0.0079 4.7750331Dec-09 7.21 -1.69 -0.08896 -0.00799 6.40696128Jan-10 9.07 55.04 0.4597 0.04129 13.1990254Feb-10 8.66 -47.08 -0.55738 -0.05006 3.65115775Mar-10 6.68 -10.54 -0.1722 -0.01547 5.1332996Apr-10 8.13 4.20 -0.03934 -0.00353 7.78064812May-10 6.81 4.13 -0.02683 -0.00241 6.571762641Jun-10 7.37 4.13 -0.03236 -0.00291 7.075105833

Findings

1 2 3 4 5 6 7 8 9 10 11 12

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

Market returns

Market returns

Findings

1 2 3 4 5 6 7 8 9 10 11 12

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Stock returns

Stock returns

Findings

July

Augus

t

Septe

mbe

r

Oct

ober

Nov

embe

r

Decem

ber

Janu

ary

Febru

ary

Mar

ch

April

May

June

0

200

400

600

800

1000

1200

Stock Price Index

Stock Price Index

Findings

•Beta was 0.08982, so the level of risk was quite low.

•The return from investment is higher than the return that we expected so variance is positive (i.e. 0.049745347).

•It means the investment portfolio is positive

Findings

•For some months, both stock and market index are negative like in July 2009 – March 2010

•From April 2010 to June 2010 both are positive.

•Covariance is also positive (i.e. 0.004468318).

•Risk free securities are taken for 91 days and we have taken for the year July 2009 to June 2010.

Findings

July

Augus

t

Septe

mbe

r

Octob

er

Nov

embe

r

Decem

ber

Janu

ary

Febru

ary

Mar

ch

April

May

June

02468

101214

Expected Return

Rf+ß(Rm-Rf)

Conclusion

•Stocks with a high beta should have a higher return than the market

•The CAPM shows that the expected return of a security or a portfolio should equal the rate on a risk-free security plus a risk premium

•If this expected return does not meet or exceed the required return, the investment should not be undertaken

Conclusion

•Chilime hydropower project is one of the most profitable investments in Nepal

•Chilime can offer good dividend and cash returns to the investors

•The Company’s net profit has crossed NRs.843 million in the last fiscal year

•Because of its profitability it has a relatively high share price

• It is a good time to own a share of Chilime Hydropower Project

Conclusion

Thank You