How to Analyze an IPO in Nepal: A Beginner’s Guide to Making Smart Investment Choices

In recent years, IPO (Initial Public Offering) investments have become one of the most popular entry points for new investors in Nepal. With the chance to own shares of a company before it hits the secondary market, IPOs can be both exciting and profitable—if you know what to look for.

However, not all IPOs are equal. Some perform exceptionally well after listing, while others quickly lose value. So, how can you tell which IPO is worth your money?

In this blog, we’ll walk you through a practical approach to analyzing IPOs in Nepal, so you can make smarter, more confident investment choices.

What Is an IPO?

An IPO (Initial Public Offering) is when a private company offers its shares to the public for the first time by listing on the Nepal Stock Exchange (NEPSE).

Investors apply through the primary market (usually via MeroShare) and get allocated shares if demand doesn’t exceed supply. If oversubscribed, shares are distributed via a lottery system.

Why IPOs Are So Popular in Nepal

Low entry barrier – You can apply with as little as Rs. 1,000 (for 10 units).
Potential listing gains – Some shares list at double or even triple their IPO price.
Safer reputation – IPOs are seen as a relatively lower-risk entry point, especially government-backed or regulated sector listings (like hydropower, microfinance, or insurance).

But popularity doesn’t guarantee profit. That’s why you need to analyze each IPO before applying.

Step-by-Step Guide to Analyze an IPO in Nepal

✅ Step 1: Read the IPO Prospectus

Every IPO comes with a prospectus approved by the Securities Board of Nepal (SEBON). It contains essential information such as:

Company profile
Financial statements
Promoter details
Risk factors
Fund utilization plan

👉 Where to get it: Visit the issuing company’s website, SEBON's site, or the issue manager's site (e.g., NIBL Ace Capital, Prabhu Capital).

✅ Step 2: Understand the Company’s Business Model

Before investing in a company, ask yourself:

What does the company do?
Is it in a growth sector (like hydropower or fintech)?
How does it earn revenue?
Is the business seasonal or stable?

Example: A hydropower company’s income depends on power generation and sale contracts with NEA. Seasonal water flow affects profitability.

A simple, clear business model often means better predictability of future earnings.

✅ Step 3: Evaluate the Promoters and Management Team

Strong leadership often equals a strong company.

Are the promoters experienced in this industry?
Have they successfully managed other ventures?
Do they hold a significant stake even after the IPO?

A committed promoter group (owning 51% or more post-IPO) usually aligns their interests with yours as a shareholder.

✅ Step 4: Analyze Financial Statements

Focus on these key numbers from the last 3 years of financials:

1. Net Profit

Look for consistent or growing profits. Avoid companies with frequent losses unless they’re turnaround stories with strong prospects.

2. Earnings Per Share (EPS)

Higher EPS usually means better earnings per share. Compare it with similar listed companies in the same sector.

3. Net Worth Per Share

The higher the net worth compared to the IPO price, the better.

4. Return on Equity (ROE)

This shows how efficiently the company uses investor funds to generate profit.

📌 If you’re not a finance expert, focus on EPS and Net Worth. These give a quick snapshot of how valuable your investment may be.

✅ Step 5: Check the Valuation and Issue Price

One of the most important (but often ignored) parts of IPO analysis in Nepal is valuation.

Is the company issuing shares at par value (Rs. 100) or premium (e.g., Rs. 200, Rs. 300, etc.)?
If premium: Is it justified by strong financials or growth prospects?
Compare the P/E ratio with peers: A very high P/E may signal overvaluation.

⚠️ Some companies charge premiums without proven profitability—invest cautiously.

✅ Step 6: Understand How the IPO Funds Will Be Used

Check the prospectus for the utilization plan:

Is the money going to expand the business, repay loans, or build infrastructure?
A focused, growth-oriented use of funds is a green flag.
If most of the IPO funds are used to clear debts or pay insiders, be cautious.

✅ Step 7: Look at Sector and Market Trends

Understanding the bigger picture matters:

Hydropower IPOs are often well-received but seasonal risks apply.
Microfinance tends to have strong listing gains but watch for overvaluation.
Banking and insurance sectors offer stability, though growth may be slower.

Also, consider market timing—during bullish markets, IPOs tend to be more successful.

✅ Step 8: Review Credit Ratings (If Available)

Some IPOs are rated by credit agencies like ICRA Nepal.

Ratings like [ICRANP-IR BBB] or higher suggest medium-to-low risk.
Use this as a second opinion, not the only factor.

✅ Step 9: Check Past IPO Performance for Similar Companies

History may not repeat, but it rhymes.

Look at how similar IPOs have performed after listing.
Did a previous hydropower IPO go up 100% or fall?
Are microfinance companies trading far above their IPO price?

This gives you context for your expectations.

✅ Step 10: Consider the Subscription Trend

Right before IPO closes:

Check MeroShare for how much the IPO is oversubscribed.
High demand signals strong investor interest.
If oversubscription is massive (100x+), prepare for lottery allocation of only 10 units.

Don’t let hype push you into applying—use it as one piece of the puzzle.

Red Flags to Watch Out For

Unclear or overly complex business model
Lack of profits or erratic earnings
Promoters with little stake post-IPO
Valuation not backed by financials
Poor use of IPO proceeds (e.g., only debt repayment)

IPO Application Tips in Nepal

Apply through MeroShare during the IPO period
Use ASBA from your bank account to block funds
Always apply for 10 units (Rs. 1,000) if you’re not sure—lower risk, easier lottery chance

Final Thoughts: Analyze, Then Apply

Investing in IPOs can be a great way to begin your stock market journey in Nepal. But don’t rely solely on trends or tips from others. Take the time to read, understand, and analyze each offering. With a little effort, you can spot real opportunities and avoid risky bets.

Remember—informed investing beats lucky guessing any day.