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NHPC (NHPC)
Utilities
Seasonally strong quarter, supplemented by prior-period income. NHPC reported
strong earnings growth aided by (1) additional contribution from Sewa II, (2) priorperiod
income due to final tariff orders, and (3) higher incentives compared to the same
period last year. We continue to remain optimistic about the prospects of NHPC, with
management guiding for commissioning of 723 MW over the next six months. We reiterate
out BUY rating and maintain PT of Rs30/share taking cognizance of no fuel risk
and low cost of generation.
Earnings boosted by prior-period adjustments, operationally in line with estimates
NHPC reported revenues of Rs14.3 bn (40% yoy), operating profit of Rs9.1 bn (12% yoy) and
adjusted net income of Rs7.8 bn (46% yoy) against our estimates of Rs11.9 bn, Rs9.1 bn and
Rs5.8 bn, respectively. Despite grossing up on MAT rate in 1QFY12 (and correspondingly lowerthan-
estimated average realization), prior-period sales of Rs2.8 bn yielded a 20% revenue beat.
However, higher-than-estimated provisioning for water cess (Rs2 bn against our estimate of Rs375
mn) and higher-than-estimated O&M expenses (adjusting for water cess) resulted in an in-line
operating profit. Net income was 34% ahead of our estimate primarily on account of (1) lowerthan-
estimated depreciation, (2) Rs689 mn from profit on transfer of assets, (3) lower-thanestimated
tax rate (18% against our estimate of 26%) and (4) interest income against prior-period
sales.
Capacity addition could act as immediate catalyst for stock performance
NHPC will likely add 515 MW of capacities in FY2012E ending a three-year drought of negligible
capacity addition—only120 MW of Sewa II was added in June 2010. Management remains
confident of adding 515 MW over the next six months, and has guided for potential capacity
addition of 723 MW by end-FY2012E. In our view, incremental commissioning of capacities in the
next few years could be a strong catalyst for the stock as it would restore investor faith in NHPC’s
execution capabilities.
Reiterate BUY with a target price of Rs30/share
We maintain our BUY rating on NHPC with a target price of Rs30. Attractive valuations of 1X
FY2013E book and 12X on FY2013E EPS along with inherent security in the business model (as
highlighted above) makes NHPC one of our preferred picks in the sector. Our valuation includes (1)
Rs19/share for operational as well as under construction power projects and (2) Rs11/share for
cash and cash equivalents. We have revised our EPS estimate to Rs2.1/share (previously
Rs2.3/share) in FY2013E as we adjust for commissioning delays.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
NHPC (NHPC)
Utilities
Seasonally strong quarter, supplemented by prior-period income. NHPC reported
strong earnings growth aided by (1) additional contribution from Sewa II, (2) priorperiod
income due to final tariff orders, and (3) higher incentives compared to the same
period last year. We continue to remain optimistic about the prospects of NHPC, with
management guiding for commissioning of 723 MW over the next six months. We reiterate
out BUY rating and maintain PT of Rs30/share taking cognizance of no fuel risk
and low cost of generation.
Earnings boosted by prior-period adjustments, operationally in line with estimates
NHPC reported revenues of Rs14.3 bn (40% yoy), operating profit of Rs9.1 bn (12% yoy) and
adjusted net income of Rs7.8 bn (46% yoy) against our estimates of Rs11.9 bn, Rs9.1 bn and
Rs5.8 bn, respectively. Despite grossing up on MAT rate in 1QFY12 (and correspondingly lowerthan-
estimated average realization), prior-period sales of Rs2.8 bn yielded a 20% revenue beat.
However, higher-than-estimated provisioning for water cess (Rs2 bn against our estimate of Rs375
mn) and higher-than-estimated O&M expenses (adjusting for water cess) resulted in an in-line
operating profit. Net income was 34% ahead of our estimate primarily on account of (1) lowerthan-
estimated depreciation, (2) Rs689 mn from profit on transfer of assets, (3) lower-thanestimated
tax rate (18% against our estimate of 26%) and (4) interest income against prior-period
sales.
Capacity addition could act as immediate catalyst for stock performance
NHPC will likely add 515 MW of capacities in FY2012E ending a three-year drought of negligible
capacity addition—only120 MW of Sewa II was added in June 2010. Management remains
confident of adding 515 MW over the next six months, and has guided for potential capacity
addition of 723 MW by end-FY2012E. In our view, incremental commissioning of capacities in the
next few years could be a strong catalyst for the stock as it would restore investor faith in NHPC’s
execution capabilities.
Reiterate BUY with a target price of Rs30/share
We maintain our BUY rating on NHPC with a target price of Rs30. Attractive valuations of 1X
FY2013E book and 12X on FY2013E EPS along with inherent security in the business model (as
highlighted above) makes NHPC one of our preferred picks in the sector. Our valuation includes (1)
Rs19/share for operational as well as under construction power projects and (2) Rs11/share for
cash and cash equivalents. We have revised our EPS estimate to Rs2.1/share (previously
Rs2.3/share) in FY2013E as we adjust for commissioning delays.
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