Expected addition muted
NHPC’s FY14 consolidated earnings were 19% below our estimate largely due
to lower-than-expected incentive income and higher deferred tax. NHPC
commissioned 807MW of capacity in FY14 and we expect 624MW to be added
in the next three years (Figure 5). While the stock is already trading below its
book value, we believe that its low ROE and issues with under-construction
projects are likely to keep the stock performance muted. Due to the recent
run-up, we downgrade NHPC to Reduce from Hold with a higher rolled-over
SOP-based target price. Key de-rating catalysts are continued delays in
capacity addition, delays in resolution of Subansiri issues and potential for an
equity reduction in other high-capital costs projects such as Chutak.
Results below expectations
NHPC’s standalone 4QFY14 loss of INR7bn was led by booking of Rs12.6bn
worth of borrowings and administrative costs for the stalled Subansiri and
TLDP-IV projects. During the quarter, the company received a one-time
dividend of Rs3.5bn from a subsidiary and an insurance claim of Rs840m for
the Dhauliganga project. It also booked a negative incentive income of Rs560m
on prior quarter adjustments. Excluding these, the profitability for the quarter
was sharply below our and consensus estimates.
Update on under-construction projects
NHPC has commissioned 807MW in FY14 and we expect 624MW to be added
in the next three years (figure 5). The 2GW Subansiri project has been stalled
for over two years due to local agitation and clarity on its construction timeline
is anticipated by the end of 1HFY15. We now expect it to be commissioned by
FY19. An additional provision of about Rs5bn-6bn may be required in FY15 if
the construction does not restart. The work on Parbati-II project has restarted
after it was awarded to Gammon-CMC JV and Valecha. We now expect it to be
commissioned by FY19. The tunnel work for Kishanganga is complete and it is
expected to come onstream in FY17.
Downgrade to Reduce
The stock is already trading below its book value, but we believe that its low
ROE and various issues with
stock performance muted.
��
NHPC’s FY14 consolidated earnings were 19% below our estimate largely due
to lower-than-expected incentive income and higher deferred tax. NHPC
commissioned 807MW of capacity in FY14 and we expect 624MW to be added
in the next three years (Figure 5). While the stock is already trading below its
book value, we believe that its low ROE and issues with under-construction
projects are likely to keep the stock performance muted. Due to the recent
run-up, we downgrade NHPC to Reduce from Hold with a higher rolled-over
SOP-based target price. Key de-rating catalysts are continued delays in
capacity addition, delays in resolution of Subansiri issues and potential for an
equity reduction in other high-capital costs projects such as Chutak.
Results below expectations
NHPC’s standalone 4QFY14 loss of INR7bn was led by booking of Rs12.6bn
worth of borrowings and administrative costs for the stalled Subansiri and
TLDP-IV projects. During the quarter, the company received a one-time
dividend of Rs3.5bn from a subsidiary and an insurance claim of Rs840m for
the Dhauliganga project. It also booked a negative incentive income of Rs560m
on prior quarter adjustments. Excluding these, the profitability for the quarter
was sharply below our and consensus estimates.
Update on under-construction projects
NHPC has commissioned 807MW in FY14 and we expect 624MW to be added
in the next three years (figure 5). The 2GW Subansiri project has been stalled
for over two years due to local agitation and clarity on its construction timeline
is anticipated by the end of 1HFY15. We now expect it to be commissioned by
FY19. An additional provision of about Rs5bn-6bn may be required in FY15 if
the construction does not restart. The work on Parbati-II project has restarted
after it was awarded to Gammon-CMC JV and Valecha. We now expect it to be
commissioned by FY19. The tunnel work for Kishanganga is complete and it is
expected to come onstream in FY17.
Downgrade to Reduce
The stock is already trading below its book value, but we believe that its low
ROE and various issues with
stock performance muted.
No comments:
Post a Comment