Upper Solu Hydroelectric Company Limited (USHEC) has recorded a significant improvement in its financial performance over the five years from Q4 FY 2078/79 to Q4 FY 2082/83, with rising electricity revenue, falling financial costs and a steady recovery in profitability.

The company operates a hydropower project in Solukhumbu with a total project cost of Rs. 500 crore. Its electricity generation license is valid through 2105/12/03 B.S., while the company had an outstanding license period of 37 years at the time of the review. USHEC issued its IPO in 2079, offering 24.5% of its issued capital, equivalent to 3.31 million shares worth Rs. 330.75 million.

The most significant improvement has come from the company's revenue. Operating income increased from Rs. 380.94 million to Rs. 742.80 million over the five-year period, representing roughly 95% growth. Electricity sales accounted for almost all of this increase, rising from Rs. 380.74 million to Rs. 738.29 million.

The growth in electricity revenue has been accompanied by a substantial reduction in financial expenses. Financial costs fell from Rs. 414.32 million to Rs. 199.90 million, a decline of approximately 51.8%. For a capital-intensive hydropower company carrying significant project debt, the reduction in financing costs has been an important driver of the improvement in profitability.

The company's operating expenses have also increased, although at a slower pace than revenue. Excluding the initial period, operating expenses rose from Rs. 108.74 million to Rs. 136.54 million. Project operating expenses increased to Rs. 102.29 million in the latest period as the company continued operating and maintaining its hydropower infrastructure.

Depreciation remains another major expense. It increased from Rs. 82.08 million to Rs. 193.34 million during the review period, reflecting the substantial fixed-asset base associated with the hydropower project.

The balance sheet also shows a gradual reduction in leverage. Loans and long-term liabilities declined from approximately Rs. 3.63 billion to Rs. 2.94 billion, an 18.8% reduction. Debt's share of total funds consequently fell from 70.5% to 64.7%, indicating that the company has become less dependent on borrowed capital.

USHEC's total sources of funds declined from approximately Rs. 5.14 billion to Rs. 4.55 billion, broadly reflecting the reduction in fixed assets and borrowings. Paid-up capital remained unchanged at Rs. 1.35 billion throughout the period. Meanwhile, reserves moved from a negative position to a positive Rs. 256.76 million, marking a significant improvement in shareholders' equity.

The turnaround is most visible in the bottom line. USHEC reported a net loss of Rs. 33.77 million in Q4 FY 2079/80, before returning to a profit of Rs. 11.97 million and then Rs. 113.20 million. By Q4 FY 2082/83, net profit had reached Rs. 208.76 million. The latest profit represents a substantial recovery from the loss-making period and gives the company a net margin of approximately 28.1%.

Key profitability indicators have followed the same trajectory. EPS moved from Rs. 3.24 to Rs. 15.46, despite falling to negative Rs. 2.50 during the loss-making year. ROE improved from 2.88% to 12.99%, while ROA increased from 0.81% to 4.34%. Net worth per share, after falling to Rs. 93.81, recovered to Rs. 119.02, its highest level in the five-year period.

Overall, USHEC's five-year performance points to a company moving from the financial strain associated with a heavily leveraged hydropower project toward a more sustainable earnings profile. Higher electricity revenue, lower financial expenses, declining debt and the return to positive reserves have materially strengthened the company's financial position. The key question going forward is whether the company can sustain electricity generation and cash flows while continuing to reduce its financing burden.