Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NHPC (REDUCE)
Utilities
Seasonally lean quarter. NHPC’s net income of Rs2.2 bn during the current quarter is
not comparable to prior periods due to the seasonal nature of business as well as prior
period revenues booked during the same period last year. NHPC has so far
commissioned only 1,150 MW and will likely commission another 1,130 MW by end-
FY2012E, thus falling short of its original XIth plan target of ~3,000 MW. We revise our
rating to REDUCE noting limited upside and recent underperformance.
Change in depreciation policy boosts PAT
NHPC reported revenues of Rs7.1 bn (-43% qoq, -42% yoy), operating profit of Rs4.1 bn (-59%
qoq, -53% yoy) and net income of Rs3 bn (-56% qoq, -48% yoy) against our estimates of Rs6.7
bn, Rs3.1 bn and Rs1.1 bn, respectively. We note that operational results are not comparable
sequentially due to the seasonal nature of the business. A sharp yearly drop in revenues and net
income is primarily due to Rs6.1 bn of prior period revenues booked in 3QFY10.
Higher-than-estimated PAT was primarily due to (1) change in depreciation policy resulting in
lower-than-estimated depreciation along with prior period adjustment of Rs787 mn and (2) lowerthan-
estimated O&M expenses. We discuss in detail below operational highlights of 3QFY11 along
with details of depreciation policy change.
Project execution – little to cheer
Earnings and revenue growth for NHPC will be driven by incremental capacity addition of 4,502
MW in the next four years. However, pace of execution for most of the under-construction
projects has been disappointing with significant commissioning delays and cost overruns (see
Exhibit 4). We highlight that against the original plan of adding 5,322 MW in the XIth plan period,
NHPC has so far commissioned only 1,150 MW and will likely commission another 1,130 MW by
end-FY2012E, thus falling short of its original target of ~3,000 MW. As per recent media reports,
the management has attributed slippages of key projects such as Subansiri Lower (2,000 MW) for
the miss in plan targets.
Upgrade to REDUCE on recent underperformance
We upgrade NHPC to REDUCE (SELL previously) on account of recent underperformance and
limited upside. Our valuation includes (1) Rs18/share for operational as well as under-construction
power projects and (2) Rs10/share for cash and cash equivalents and CWIP for development
projects not included in SOTP. NHPC is valued at a P/B of 1.2X on FY2012E book (our target price
implies a P/B of 1.3X). We have revised our EPS estimate to Rs1.5/share in FY2011E (previously
Rs1.3/share) and Rs1.7/share in FY2012E (previously Rs1.6/share) to factor primarily the revision of
depreciation policy and delays in project implementation.
Key highlights of 3QFY11 results
Operations. NHPC’s estimated gross generation in 3QFY11 was 3,067 MU (15% yoy)
implying an average realization of Rs2.3/kwh and average O&M of 95p/kwh. Yearly
growth in generation was primarily on account of commissioning of 120 MW of Sewa II
in 2QFY11.
Change in depreciation policy. NHPC changed its depreciation policy retrospectively
(with effect from April 2009) to align its policy with CERC regulations. As per CERC,
generation assets are to be depreciated at accelerated rate for the first 12 years of
operations and then uniformly depreciated for balance useful life of the project (total life
for hydro assumed to be 35 years). NHPC had been depreciating all its assets at rates
prescribed by CERC (including those that have been in operation for more than 12 years).
The change in policy resulted in Rs997 mn lower depreciation in FY2010 (carried as prior
period item) and Rs1,446 mn in 9MFY11.
Operation and maintenance expenses. Total O&M expenses declined 11% yoy to
Rs2.9 bn. We estimated a higher O&M of Rs3.7 bn to account for higher repair and
maintenance activities that are typically carried out in 2HFY11. We seek more clarity from
the management on the same.
Tax. Effective tax rate increased to 37% in 3QFY11 from 19% in 2QFY11, likely on
account of increased deferred tax component arising out of commissioning of Sewa II.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
NHPC (REDUCE)
Utilities
Seasonally lean quarter. NHPC’s net income of Rs2.2 bn during the current quarter is
not comparable to prior periods due to the seasonal nature of business as well as prior
period revenues booked during the same period last year. NHPC has so far
commissioned only 1,150 MW and will likely commission another 1,130 MW by end-
FY2012E, thus falling short of its original XIth plan target of ~3,000 MW. We revise our
rating to REDUCE noting limited upside and recent underperformance.
Change in depreciation policy boosts PAT
NHPC reported revenues of Rs7.1 bn (-43% qoq, -42% yoy), operating profit of Rs4.1 bn (-59%
qoq, -53% yoy) and net income of Rs3 bn (-56% qoq, -48% yoy) against our estimates of Rs6.7
bn, Rs3.1 bn and Rs1.1 bn, respectively. We note that operational results are not comparable
sequentially due to the seasonal nature of the business. A sharp yearly drop in revenues and net
income is primarily due to Rs6.1 bn of prior period revenues booked in 3QFY10.
Higher-than-estimated PAT was primarily due to (1) change in depreciation policy resulting in
lower-than-estimated depreciation along with prior period adjustment of Rs787 mn and (2) lowerthan-
estimated O&M expenses. We discuss in detail below operational highlights of 3QFY11 along
with details of depreciation policy change.
Project execution – little to cheer
Earnings and revenue growth for NHPC will be driven by incremental capacity addition of 4,502
MW in the next four years. However, pace of execution for most of the under-construction
projects has been disappointing with significant commissioning delays and cost overruns (see
Exhibit 4). We highlight that against the original plan of adding 5,322 MW in the XIth plan period,
NHPC has so far commissioned only 1,150 MW and will likely commission another 1,130 MW by
end-FY2012E, thus falling short of its original target of ~3,000 MW. As per recent media reports,
the management has attributed slippages of key projects such as Subansiri Lower (2,000 MW) for
the miss in plan targets.
Upgrade to REDUCE on recent underperformance
We upgrade NHPC to REDUCE (SELL previously) on account of recent underperformance and
limited upside. Our valuation includes (1) Rs18/share for operational as well as under-construction
power projects and (2) Rs10/share for cash and cash equivalents and CWIP for development
projects not included in SOTP. NHPC is valued at a P/B of 1.2X on FY2012E book (our target price
implies a P/B of 1.3X). We have revised our EPS estimate to Rs1.5/share in FY2011E (previously
Rs1.3/share) and Rs1.7/share in FY2012E (previously Rs1.6/share) to factor primarily the revision of
depreciation policy and delays in project implementation.
Key highlights of 3QFY11 results
Operations. NHPC’s estimated gross generation in 3QFY11 was 3,067 MU (15% yoy)
implying an average realization of Rs2.3/kwh and average O&M of 95p/kwh. Yearly
growth in generation was primarily on account of commissioning of 120 MW of Sewa II
in 2QFY11.
Change in depreciation policy. NHPC changed its depreciation policy retrospectively
(with effect from April 2009) to align its policy with CERC regulations. As per CERC,
generation assets are to be depreciated at accelerated rate for the first 12 years of
operations and then uniformly depreciated for balance useful life of the project (total life
for hydro assumed to be 35 years). NHPC had been depreciating all its assets at rates
prescribed by CERC (including those that have been in operation for more than 12 years).
The change in policy resulted in Rs997 mn lower depreciation in FY2010 (carried as prior
period item) and Rs1,446 mn in 9MFY11.
Operation and maintenance expenses. Total O&M expenses declined 11% yoy to
Rs2.9 bn. We estimated a higher O&M of Rs3.7 bn to account for higher repair and
maintenance activities that are typically carried out in 2HFY11. We seek more clarity from
the management on the same.
Tax. Effective tax rate increased to 37% in 3QFY11 from 19% in 2QFY11, likely on
account of increased deferred tax component arising out of commissioning of Sewa II.
No comments:
Post a Comment