Upper Mailung Khola Turns Profitable as Power Sales Rise and Finance Costs Ease

Kathmandu — Upper Mailung Khola Jalvidyut Limited (MMKJL) has staged a notable financial turnaround, moving from loss to profit in the latest fiscal year as higher electricity sales and lower finance costs strengthened its earnings. The company’s unaudited fourth-quarter financial statement shows that it closed the year with a net profit of Rs 111.2 million, compared with a net loss of Rs 6.84 million in the previous fiscal year.

The result represents more than a simple year-on-year rise in profit. Since the company was in the red a year earlier, calculating a conventional percentage increase in net profit would be misleading. The more meaningful development is that MMKJL improved its bottom line by roughly Rs 118 million, moving from a loss-making position to substantial positive earnings.

Electricity sales were the main foundation of the improvement. Revenue from power sales climbed 23.34 percent to Rs 431.1 million during the fiscal year. Based on the reported growth rate, electricity sales in the previous year were approximately Rs 349.5 million, meaning the company added roughly Rs 81.6 million in annual power-sales revenue.

For a hydropower producer, this is an important distinction. Electricity sales represent the company’s core operating business, so a rise in revenue is generally a stronger sign than profit growth generated primarily through one-off accounting adjustments or non-operating income. The latest figures therefore indicate that at least part of MMKJL’s turnaround originated from an improvement in its underlying electricity-generation business.

The quality of the improvement becomes more visible further down the income statement. While electricity sales increased by 23.34 percent, gross profit expanded by 30.34 percent. This means gross profit grew faster than revenue, suggesting that the company retained a larger portion of its sales after accounting for direct operating costs.

Operating profit performed even better, rising 51.13 percent from the previous fiscal year. The fact that operating profit grew more than twice as fast as electricity revenue is particularly significant. It suggests improved operating leverage: as revenue increased, costs did not rise at the same pace, allowing a greater proportion of additional sales to translate into operating earnings.

The second major factor behind the turnaround was a 21.40 percent decline in finance costs. This carries particular weight in hydropower because projects are normally developed with substantial borrowing. Once a plant enters commercial operation, interest expense and debt repayment can absorb a large share of operating cash generation, especially during the initial years.

For MMKJL, therefore, the combination of higher electricity revenue and lower financial expenses worked in the same direction. Revenue improved at the operating level while less of that income was consumed by financing costs. This appears to have been central to converting the previous year’s modest loss into a profit exceeding Rs 111 million.

The financial structure also suggests why falling finance costs can have such a strong effect. Hydropower projects generally carry relatively high fixed costs. Once construction is completed, incremental electricity generation can contribute disproportionately to profits because many costs do not increase in direct proportion to revenue. If debt-related expenses simultaneously decline, the effect on net earnings can become even stronger.

This is visible in MMKJL’s earnings per share. The company’s EPS improved from negative Rs 0.68 to positive Rs 11.13. With paid-up capital of Rs 1 billion, the latest EPS indicates that the company generated net earnings equivalent to roughly 11.1 percent of its paid-up equity during the fiscal year.

The shift in EPS is more informative than simply saying earnings increased. A year earlier, each share effectively represented a small accounting loss. This year, every Rs 100 face-value share generated more than Rs 11 in annual earnings. That represents a material improvement in the return being generated on shareholders’ paid-up capital.

However, the company has yet to build a substantial accumulated reserve base. MMKJL has Rs 1 billion in paid-up capital, while its reserve fund stands at only Rs 5.72 million. Reserves are therefore equivalent to just around 0.57 percent of paid-up capital.

This is an important point for shareholders. A company can report a strong annual profit while still having a relatively thin historical reserve position. MMKJL’s latest profit improves that picture, but the size of its existing reserves indicates that the balance sheet has not yet accumulated a large cushion of retained earnings.

The company’s net worth per share of Rs 100.57 tells a similar story. It is marginally higher than the Rs 100 face value of the share. In accounting terms, this means shareholders’ equity backing each share has only recently moved above its nominal value.

The figure is not inherently negative; rather, it reflects the company’s financial stage. Hydropower companies that have recently moved through construction, commissioning and early commercial operation often begin with limited accumulated reserves. What matters from this point is whether sustained profits can progressively lift retained earnings and net worth.

If MMKJL were able to maintain annual earnings around the current level, future profits retained within the company could strengthen its reserve position much more rapidly. Conversely, if power generation declines or financing expenses rise again, the balance-sheet improvement could be slower.

For this reason, the latest Rs 111.2 million profit should not automatically be treated as the company’s new permanent earnings level. Hydropower profitability can fluctuate considerably from one year to another. Generation depends partly on river discharge and hydrological conditions, while technical availability, transmission interruptions, plant maintenance and power-purchase arrangements can also affect sales.

The 23.34 percent rise in electricity revenue therefore deserves closer attention in subsequent reporting periods. If the increase resulted from a sustainable improvement in generation—such as a full year of commercial operation or better plant availability—the higher revenue base could persist. If it was driven substantially by unusually favourable hydrology, future sales could be more volatile.

Finance costs will be equally important. A 21.40 percent reduction has materially assisted this year’s earnings. If the decline reflects scheduled loan repayment and a gradually shrinking debt balance, financial expenses could continue to moderate over time, creating further room for profit growth even without another 23 percent increase in electricity sales.

But investors should not assume that finance costs will decline at the same pace every year. The outcome will depend on outstanding debt, repayment schedules, refinancing terms and interest rates. Without the absolute finance-cost figures and debt position, it is not possible to determine how much additional benefit remains.

The company’s gross and operating profit trends nevertheless provide encouraging evidence about operational improvement. Gross profit rising 30.34 percent against revenue growth of 23.34 percent suggests better economics at the production level, while the 51.13 percent increase in operating profit indicates that the gain was amplified after operating expenses.

That distinction makes MMKJL’s latest result more meaningful than a turnaround driven solely by extraordinary income. The company appears to have benefited from both sides of its income statement: more revenue from electricity sales and less pressure from financing expenses.

For shareholders, however, profitability and dividend-paying capacity are not the same thing. Despite recording Rs 111.2 million in net profit, the company’s reserve position remains limited, and the figures provided do not disclose its distributable profit. It would therefore be premature to derive a specific dividend expectation solely from the reported EPS of Rs 11.13.

The next financial year will provide a more demanding test. Investors will need to monitor whether electricity sales remain near or above the current Rs 431 million level, whether finance costs continue to decline, and whether the company converts another year of profit into stronger reserves and higher net worth.

Overall, MMKJL’s fourth-quarter statement marks a clear transition in its financial performance. A company that reported a loss of nearly Rs 6.84 million a year ago has now generated more than Rs 111 million in profit, while its core electricity revenue has crossed Rs 431 million and EPS has turned decisively positive.

The strongest feature of the report is not simply the size of the annual profit. It is the combination of 23.34 percent growth in core power revenue, 51.13 percent growth in operating profit and a 21.40 percent reduction in finance costs. Together, those figures suggest that the improvement has an operational basis.

The principal weakness remains the thin reserve position and net worth only slightly above face value. MMKJL has therefore demonstrated that it can generate profit; the next challenge is to demonstrate that it can sustain those earnings, reduce financial pressure further and convert annual profits into a stronger balance sheet over several consecutive years.