NHPC report:: Motilal oswal,

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 Adjusted PAT in-line with estimates: NHPC reported 3QFY12 PAT of INR2.2b. Adjusted for several extraordinary/
exceptional items, PAT stood at INR2.7b (up 51% YoY), in-line with our estimates. During 3QFY12, NHPC's
(standalone) generation stood at 3.1BUs, up 2% YoY. Barring Loktak, all other NHPC projects reported degrowth
in generation and average PLF stood at 38% v/s 37% YoY. Incentives income comprising of UI, Secondary
Energy and PAF stood at INR770m v/s INR1.57b in 2QFY12 and INR1.8b in 1QFY12.
 Capacity addition target lowered: NHPC has lowered its capacity addition targets for FY12 and FY13 to 313MW
(v/s earlier guidance of 515MW) and 673MW (v/s 1.1GW earlier), respectively. It is facing (1) regulatory and
administrative bottlenecks for some of its projects in J&K (Uri, Chutak , Nimoo Bazgoo) and Arunachal Pradesh
(Subhansri Lower), and (2) environment issues at Kotle Bel. This, in our view, has further diminished visibility
on capacity addition ramp-up, which is already delayed significantly.
 Receivable issue continues: NHPC is also facing delays in receivables, and 33% of its debtors (i.e. INR9b) are
60 days old. The SEBs/discoms not paying NHPC on time include Punjab, Jaipur and Reliance Infrastructure,
and account for 95% of the receivables over 60 days.
 Cut earnings Estimates: We cut our FY12/FY13 estimates to factor in capacity delays, and expect NHPC to
report PAT of INR17.2b in FY12 (down 1% YoY) and INR23b in FY13 (up 31% YoY). Stock trades at P/E of 13x FY12E
and 10x FY13E, and P/BV of 0.9x (both years). Re-iterate Neutral.
3QFY12 adjusted PAT in-line
 NHPC reported 3QFY12 revenues of INR8.8b (up 18% YoY), EBITDA of INR3.8b (down
18% YoY) and PAT of INR2.1b. There are several adjustments: (i) INR40m impact
owing to water cess charges, (ii) Prior period sales INR100m, (iii) Interests from
beneficiary (on revenues booked) INR310m, (iv) Corporate office shifting charges
(management indicated this to be recurring in nature) INR210m, (v) Write-off of
initial expenditure on account of Kotle Bel project (scrapped due to environmental
issues) at INR80m, and (vi) VRS of INR90m / tax impact of INR130m. Management
indicated Adjusted PAT at INR2.7b (up 51% YoY).
 During the quarter, NHPC has not used corporate tax rate for gross-up of RoE (as
was done in 4QF11, with retrospective effect and gain of INR6.5b). Management
said it would review the same at the end of the year, based on capacity addition.
 NHPC is also facing delays in receivables and 33% of its debtors (i.e. INR9b) are 60
days old. Total debtors on its book stood at INR26b v/s INR30b QoQ. The SEBs/
discoms not paying NHPC on time include Punjab, Jaipur and Reliance
Infrastructure, and account for 95% of the receivables over 60 days.
Operating performance impacted, generation up only 2% YoY
NHPC's (standalone) 3QFY12 generation stood at 3.1BUs, up only 2% YoY. Barring Loktak,
all other NHPC projects reported de-growth in generation and average PLF stood at
38% v/s 37% YoY. Incentives income comprising of UI, Secondary Energy and PAF for
3QFY12 stood at INR770m v/s INR1.57b in 2QFY12 and INR1.8b in 1QFY12


Profitability could be impacted as projects returns could be capped
 NHPC's projects under construction - Uri-II, Nimoo Bazgo, and Chutak - are proposed
to be transferred to a JV with J&K government for providing comfort to the later.
These projects are currently 100% owned by NHPC and thus, any transfer of value/
stake without appropriate compensation/contribution from state government
could lead to lower earnings. We currently continue to assume full profits accruing
to NHPC in these projects.
 Similarly, Parbati-III (520MW, cost INR27b) has been facing several delays. NHPC
now expects Unit-1 to get commissioned by September 2012, and thus would lead
to major project structurals (like dam, Tunnels, etc) capitalized in mid-FY13 itself,
while the balance 2 units would be commissioned only in FY14/15. This could
mean capitalization of INR17b for NHPC (whereas proportionate could have been
INR9b) and thus, the project profitability would be impacted in the near term, as
the higher interest/depreciation charge on the capitalized amount would more
than negate the return from Unit-1, possibly leading to losses.
 Also, Parbati II (expected now in CY15 v/s CY14 earlier) with cost of INR41b could
see similar under-recoveries as units are ramped up in phases.
Limited scope of RoE expansion in near term, as regulated equity build-up
back-ended
 Total projects under construction stand at 4.5GW, of which only 1.6GW is expected
in FY12/13E, lower than management's guidance of 3.1GW. We expect NHPC to
commission all projects under construction only by FY16E.
 The commissioning of 1.5GW of projects over FY12-13 will drive NHPC's regulated
equity base. We factor in revised cost estimates, and hence, delay in approval and
disallowance of overrun are a risk to our estimates. However, the addition to RAB
is back-ended and thus, the full benefit in earnings will be see in FY15


Valuation and view: Reiterate Neutral
 We cut our FY12/FY13 estimates to factor in capacity delays, and expect NHPC to
report PAT of INR17.2b in FY12 (down 1% YoY) and INR23b in FY13 (up 31% YoY).
 Stock trades at P/E of 13x FY12E and 10x FY13E and P/BV of 0.9x each for both years.
 Reiterate Neutral, despite < 1x P/BV valuation given muted RoE of 7-8% (a large
part of net worth deployed in cash/CWIP) and delayed capacity addition.