What is Fundamental Analysis based on NEPSE Market Context
SS Holdings & Investment
Pvt. Ltd. — Kathmandu, Nepal
Educational Series
NEPSE Investor Education
Fundamental Analysis & Its Application in Nepal's Stock Market
A comprehensive guide to reading financial statements, understanding key ratios, and applying value-investing principles to NEPSE-listed companies — grounded in real Q3 FY 2082/83 data.
नेपालको शेयर बजारमा धेरैजसो लगानीकर्ताहरू "कुन शेयर किन्ने?" भन्दा पनि "कहिले किन्ने?" मा बढी ध्यान दिन्छन् — र यसैले उनीहरू अक्सर गलत निर्णयमा पुग्छन्। Fundamental Analysis भनेको कुनै कम्पनीको वास्तविक मूल्य (Intrinsic Value) बुझ्ने विज्ञान हो। यो ज्ञान भएको लगानीकर्ता बजारको हल्लाबाट होइन, तथ्यबाट निर्णय गर्छ।
Most NEPSE investors focus on when to buy rather than what to buy. Fundamental Analysis solves this — it reveals a company's true worth through its financials, ratios, and business quality.
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What Is Fundamental Analysis?
मौलिक विश्लेषण भनेको के हो?
Fundamental Analysis is the method of evaluating a company's intrinsic (real) value by studying its financial statements, competitive position, management quality, and macroeconomic environment. If the market price is below the intrinsic value, the stock is considered undervalued — a potential buying opportunity.
Technical Analysis vs. Fundamental Analysis: Technical analysis studies price charts and volume to predict short-term movements. Fundamental analysis asks: "Is this a good business at a fair price?" — focusing on the long term. Smart investors use both together in NEPSE.
Three Pillars of Fundamental Analysis in NEPSE
- Quantitative Analysis: Financial statements — Income Statement, Balance Sheet, Cash Flow Statement. Key ratios: EPS, P/E, ROE, NPL ratio (for banks), Dividend Yield.
- Qualitative Analysis: Management quality, brand reputation, regulatory environment, NRB/SEBON policy, competitive moat.
- Macroeconomic Analysis: Nepal Rastra Bank interest rate cycles, GDP growth, remittance inflows, energy policy, inflation (CPI ~1.68% as of recent NRB data).
2
NEPSE at a Glance — Market Context
नेप्सेको हालको अवस्था
~2,740
NEPSE Index
Baisakh 2083 BS
267
Listed Companies
12 Sectors
38.32
Market P/E Ratio
Above hist. avg 31.25
₹465,699 Cr
Market Cap
~USD 31 Billion
Valuation Alert: NEPSE's overall P/E ratio of 38.32 is significantly above the globally healthy range of 15–20 and above its own historical average of 31.25. This signals most sectors are overvalued — with the notable exception of Commercial Banks, which remain relatively undervalued. This is precisely why fundamental analysis matters: it helps you find the islands of value in an otherwise expensive market.
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Key Ratios Every NEPSE Investor Must Know
महत्त्वपूर्ण वित्तीय अनुपातहरू
EPS
Earnings Per Share
Net Profit ÷ Total Shares. Shows how much profit a company earns per share. Higher = better. Compare EPS across quarters to spot growth trends.
NEPSE Use: Published every quarter (Q1–Q4). NABIL Bank's EPS is one of the highest among commercial banks. Always annualise quarterly EPS (×4/3 for Q3) for fair comparison.
P/E
Price-to-Earnings Ratio
LTP ÷ EPS. How many rupees investors pay for each rupee of earnings. Low P/E = potentially undervalued. High P/E = market expects high growth.
NEPSE Context: Commercial Banks average P/E is well below the market average of 38.32 — making them the only undervalued sector by this metric currently.
NWPS
Net Worth Per Share
Total Shareholders' Equity ÷ Total Shares. The book value per share. If LTP is near or below NWPS, the stock may be undervalued. Critical in NEPSE valuation.
NEPSE Use: New IPO opening prices in NEPSE are now based on 3× Face Value (revised rule, not NWPS). But NWPS remains vital for secondary market valuation.
ROE
Return on Equity
Net Profit ÷ Shareholders' Equity. How efficiently a company uses its equity capital to generate profit. Target: above 15% for banks, 10%+ for hydro/manufacturing.
NEPSE Benchmark: Strong commercial banks maintain ROE of 12–18%. Microfinance companies often show higher ROE but carry higher risk profiles.
NPL%
Non-Performing Loan Ratio
Bad Loans ÷ Total Loans (BFIs only). Lower is better. NRB guideline: below 5%. Elevated NPL signals credit quality issues and future provisioning pressure.
NEPSE Use: Critical for evaluating all Banks, Development Banks, and Finance companies. NRB's 8-month FY 2082/83 report shows commercial banks' NPL remains a key watch metric.
D/Y
Dividend Yield
Dividend per Share ÷ LTP × 100. The income return on your investment. Important for long-term, income-focused investors in NEPSE's stable companies.
NEPSE Note: Nepal's P/B ratio stands at 2.78 overall. Sectors with high dividend consistency (mature hydro, established banks) offer more predictable yields.
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Sector Valuation Snapshot — FY 2082/83
क्षेत्रगत मूल्याङ्कन
Based on Q3/Q4 FY 2081/82 → 2082/83 data. P/E benchmarks: Below 15 = deep value; 15–25 = fair; 25–40 = moderately expensive; 40+ = potentially overvalued.
| Sector (क्षेत्र) | Listed Cos. | Approx. P/E Range | P/B Range | Valuation Signal | Key Watch Metric |
|---|---|---|---|---|---|
| Commercial Banks | 20 | 10 – 18 | 0.9 – 1.5 | Undervalued | NPL %, NIM, CD Ratio |
| Development Banks | 17 | 18 – 28 | 1.2 – 2.2 | Fairly Valued | Loan Growth, NPL |
| Finance Companies | 17 | 20 – 35 | 1.0 – 2.5 | Mixed | Capital Adequacy, ROE |
| Microfinance | 65+ | 25 – 60 | 2.0 – 6.0 | Overvalued | Loan Quality, Borrower Overlap |
| Life Insurance | 19 | 30 – 70 | 2.5 – 5.0 | Overvalued | Net Premium, Solvency Ratio |
| Hydropower | 91 | 20 – 80+ | 1.5 – 4.5 | Expensive (Selective) | MW Capacity, PPA Rate, EPS |
| Manufacturing & Processing | 23 | 15 – 45 | 1.0 – 3.0 | Mixed | Revenue Growth, Margins |
| Hotels & Tourism | 5 | 30 – 80 | 1.5 – 3.5 | Expensive | Occupancy Rate, EBITDA |
Fundamental Takeaway: In a high-P/E market like current NEPSE (38.32 overall), the Commercial Banking sector stands out as the only major segment where valuations appear supported by earnings. Value investors should focus their fundamental screening here, particularly on banks with strong capital adequacy, low NPL, and consistent dividend history.
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Q3 FY 2082/83 — Recent Company Highlights
हालको त्रैमासिक वित्तीय नतिजाहरू
These recently published Q3 (Ashwin–Poush/Falgun 2082 BS) unaudited financial results illustrate fundamental analysis in practice across different sectors.
GBIME
Global IME Bank Ltd. — Commercial Bank
Net Profit Change (Q3)▼ 2.93%
Fundamental SignalWATCH
Modest decline in earnings signals pressure on Net Interest Margin. Monitor NPL ratio and loan book quality. Still Nepal's largest private bank by assets.
CIT
Citizen Investment Trust — Investment Sector
Net Profit Growth (Q3)▲ 9.68%
Fundamental SignalPOSITIVE
Steady profit growth from pension fund management and investment portfolio. Defensive, stable earnings — attractive for risk-averse fundamental investors.
GLBSL
Gurans Laghubitta — Microfinance
Net Profit Growth (Q3)▲ 48.74%
Fundamental SignalSELECTIVE
Exceptional growth — but context matters. Microfinance sector faces borrower overlap risk and elevated P/E. Growth alone doesn't justify high valuations; check P/E, NPL, and NWPS.
RSML
Reliance Spinning Mills — Manufacturing
Q3 Net Profit (9 months)NPR 266.89M
Issue PriceRs. 820.80
Strong financial position post-IPO via book-building. Manufacturing sector company. Analysts should check annualised EPS vs. LTP to assess if current price reflects earnings power.
BHDC
Bindhyabasini Hydropower Dev. Co. — Hydro
Q3 Net ProfitNPR 117.65M
SectorHydropower
Wet season (Shrawan–Ashwin) boosts hydro earnings; dry season (Magh–Chaitra) lowers them. Always annualise with seasonal adjustment. Check MW capacity and PPA tariff.
HFSL
Hulas Fin Serve Hire Purchase — Finance
Q3 Net ProfitNPR 241.34M
Fundamental SignalASSESS P/E
Finance companies carry higher credit risk. Check Capital Adequacy Ratio (CAR must be ≥11%), NPL, and leverage before considering investment based on profit alone.
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Step-by-Step: How to Do Fundamental Analysis in NEPSE
NEPSE मा मौलिक विश्लेषण कसरी गर्ने?
1
Identify the Sector & Understand the Business
Before reading numbers, understand what the company does. A hydropower company's earnings depend on rainfall and PPA tariffs. A bank's health depends on loan quality and interest margins. Sector context shapes every number.
2
Read the Quarterly Financial Reports
Go to merolagani.com → Reports or sharesansar.com. Download the latest Q3 report. Look at: Net Profit trend (3 years), EPS growth, NWPS growth. Is the company growing its earnings consistently?
3
Calculate & Compare Key Ratios
Calculate EPS P/E ROE NWPS Dividend Yield. Compare against: (a) the same company's historical ratios, (b) sector peers, (c) the overall NEPSE average. Is this company cheaper or more expensive than its peers?
4
Assess Management & Qualitative Factors
Review AGM minutes, NRB inspection reports (for BFIs), board composition, and dividend history. Good management consistently delivers on guidance. Look for companies where insiders hold significant stake — they have skin in the game.
5
Factor in Macro Conditions (NRB Policy)
Nepal Rastra Bank's monetary policy (interest rates, CRR, SLR, CD ratio) directly impacts BFI earnings. When NRB cuts rates, bank margins compress but loan demand rises. Track NRB's quarterly monetary policy reviews and 8-month financial system performance reports.
6
Estimate Intrinsic Value & Compare to Market Price
Use a simple method: Intrinsic Value = Normalised EPS × Justified P/E. Example: If a bank's EPS is Rs. 40 and the justified P/E for quality banks is 15, intrinsic value = Rs. 600. If the LTP is Rs. 450, you have a margin of safety of Rs. 150 (25%). This is your buy signal.
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Use Technical Analysis to Time Entry
Once fundamental analysis tells you what to buy, use technical analysis (support/resistance, MA crossovers, RSI) to identify when to buy. Enter at technical support zones during market corrections — never chase breakouts on fundamentally expensive stocks.
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Quick Reference: Ratio Benchmarks for NEPSE
सन्दर्भ अनुपातहरू
| Ratio | Ideal Range (NEPSE Context) | Good Signal | Red Flag |
|---|---|---|---|
| P/E Ratio | 10–20 for value investors | Below sector average | Above 40 without strong growth |
| P/B Ratio | 1.0–2.5 globally; varies by sector | Close to or below 1.5 for banks | Above 4× without high ROE |
| EPS Growth | 10–20%+ YoY | Consistent multi-year growth | Declining EPS for 2+ quarters |
| ROE | 12–18% for banks; 10%+ for hydro | Stable or improving ROE | ROE below 8% or declining |
| NPL Ratio (BFIs) | Below 5% (NRB guideline) | Below 3% = excellent quality | Above 5% = regulatory concern |
| CAR (BFIs) | Min. 11% (NRB mandate) | 13–15% = well-capitalised | Below 11% = regulatory breach |
| Dividend Yield | 3–8% for income investors | Consistent dividend history | No dividends for 3+ years |
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Common Mistakes in NEPSE Fundamental Analysis
सामान्य गल्तीहरू
Buying high-EPS growth stocks without checking P/E: A stock showing 48% profit growth (like GLBSL) may already be priced at 50× earnings. The growth is real — but if you overpay, future returns suffer.
Ignoring seasonal adjustments for Hydropower: Hydropower EPS is highest in Q1–Q2 (monsoon). Always annualise with caution. A high Q1 EPS does not mean full-year EPS will be proportionally as high.
Using unaudited Q3 reports as gospel: Q3 reports are provisional/unaudited. Final audited annual reports sometimes reveal adjustments. Cross-check key numbers when the audited report arrives.
Ignoring NRB policy impact on BFIs: Nepal Rastra Bank's directives — on interest rate corridors, provisioning requirements, and dividend caps — can directly cut or boost bank profits. Always check the latest NRB monetary policy bulletin.
"The stock market is a device for transferring money from the impatient to the patient. In NEPSE, the patient investor who buys quality at fair value, and waits, has consistently outperformed the trader who chases price momentum."
— Adapted from Warren Buffett, applied to NEPSE context9
Conclusion — Building Your NEPSE Fundamental Toolkit
निष्कर्ष
Fundamental analysis in NEPSE is not complicated — but it requires discipline. The market rewards investors who read quarterly reports, understand sector dynamics, apply ratio benchmarks, and factor in NRB macro policy. With NEPSE trading at a market P/E of 38.32 and most sectors appearing expensive, the discipline of fundamental analysis is more critical than ever to avoid overpaying.
Your Fundamental Analysis Checklist — Before Every Buy
- ✅ Read latest quarterly report (Q3 FY 2082/83 available on merolagani.com)
- ✅ Calculate EPS (annualised), P/E, NWPS, ROE
- ✅ Compare P/E vs sector average and NEPSE average (38.32)
- ✅ For BFIs: check NPL %, CAR, NIM, and CD ratio
- ✅ Assess dividend history and management track record
- ✅ Cross-check NRB policy direction (interest rate cycle)
- ✅ Estimate intrinsic value and identify margin of safety
- ✅ Use technical analysis to time the entry at support
SS Holdings & Investment Pvt. Ltd.
Kathmandu, Nepal · NEPSE · Securities & Investment
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