NHPC- Unclear Subanshri issue to act as overhang… :: ICICI Securities, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Unclear Subanshri issue to act as overhang…
• Generation increased 24.5% YoY in Q2FY15 to 835.8 crore units due
to incremental capacity of 807 MW added YoY. Tariff realisation also
improved 3.7% YoY to | 2.8 (I-direct estimate - | 2.9)
• Consequently, revenue increased 27.2% YoY to | 2,098.8 crore,
which was below our estimate of | 2,205.0 crore for the quarter
• During the quarter, NHPC included a sum of ~| 175 crore as
provisions related to administrative and borrowing cost related to its
under construction Subanshri and TLDP IV projects, which resulted
in a 3.3% YoY decline in PAT to | 684 crore
• However, after adjusting for these expenses, PAT came in at | 817.2
crore, up 15.5% YoY and in line with our estimate of | 840 crore for
the quarter. Incentives in Q2FY15 came in at | 109 crore vs. | 93
crore YoY
Environmental hurdles, cost overruns impact growth
India’s robust hydropower potential of 148.7 GW has been impacted by
various issues related to environmental clearances, long construction
period, project cost overrun, etc. leading to capacity addition of only
40.2 GW till date. With an installed capacity of 6.5 GW (including 1.5 GW
through JV), NHPC contributes ~16% of India’s total hydro capacity and
14% of total hydro generation (18.5 BUs in FY14). The company
operates under the purview of CERC regulated model (RoE - 16%) with
assured offtake pacts with SEBs. However, NHPC’s historical growth has
been hit by sectoral woes leading to delayed project execution and cost
overruns. Accordingly, the PSU has been suffering from very low RoEs
as a significant chunk of its asset has been blocked in CWIP (CWIP as
percentage of networth at 55% for FY14) for projects under
construction. However, with the formation of a stable NDA government
at the Centre, we believe project clearances and execution will take off
at a rapid pace, which will address the sectoral concern.
Capacity addition of 807 MW in H2FY14 to reap benefit in FY15E
NHPC’s standalone installed capacity has grown at a CAGR of 6.9% over
FY02-14 taking overall capacity to 4,987 MW. NHPC added 807 MW of
capacity in H2FY14, which was during the lean period. Thus, earnings
remained subdued in FY14 as fixed cost went up. However, FY15E is
expected to see better PAF and PLF with commissioning of the entire 5
GW capacity as even the flood impacted 280 MW Dhauliganga plant was
fully operational in H1FY15. As expected, NHPC reported robust
generation growth surpassing our expectation during H1FY15.
Accordingly, we expect generation and PAT to grow 16.7% and 69.6%
YoY, respectively, in FY15E. While the management remains positive on
starting unit-1 of Parbati II in FY15 and begin construction at Subanshri
soon, we maintain our estimate that FY15-16 would see a lull in terms of
capacity addition.
Target price revised downward; still maintain BUY
While the incremental YoY capacity would generate higher units in
FY15E and FY16E leading to better PLF and PAF as reflected in H1FY15,
the incorporation of expenses related to Subanshri and TLDP IV is likely
to slightly dent earning in FY15 which we have incorporated in our
valuation. However, the delay over the execution of Subanshri projects
and ~ | 6, 900 CWIP on the same will act as an overhang on the stock
price till clarity persists. Factoring in the same, we now lower our FY16E
target P/BV multiple to 1.0x (1.2x earlier) and derive a target price of | 26
(earlier | 32). We maintain our BUY rating.

LINK
http://content.icicidirect.com/mailimages/IDirect_NHPC_Q2FY15.pdf