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NHPC Ltd -------------------------------------------------------------------------------Maintain NEUTRAL
3Q11 results disappointed; expect project delays during FY12
● For a like-for-like comparison, NHPC’s 3Q11 results need to be
adjusted for: 1) provision of Rs270 mn (Rs216 mn post-tax)
included in staff cost relating to the prior period (January 2007 to
September 2010); 2) Rs1.4 bn (Rs326 mn post-tax) of
depreciation expenses that need to be provided for if its
depreciation policy was unchanged.
● NHPC’s standalone recurring PAT rose 26% YoY, led by more
than doubling of UI and secondary energy incentives of Rs510 mn
vs 3Q10, but was 9% below our estimate on lower-than-expected
generation and incentives. Generation at 3.07 bn kWh was flat
YoY despite the commissioning of 120 MW Sewa II project.
● Following the guidance of the Comptroller & Auditor General,
NHPC has now aligned its depreciation policy in line with the
CERC norms (used for tariff determination), which should lead to
a fall in its reported depreciation.
● NHPC’s 1.2 GW capacity addition planned during FY12 has been
delayed by three-six months on account of several factors. Due to
weak earnings and execution delays, we cut our earnings by 7-
10% for FY11-13E and lower target price to Rs29 (from Rs31).
We maintain our NEUTRAL rating.
Generation flat YoY; 3Q results disappointed
Despite the commissioning of its 120 MW Sewa-II hydro power project
during 1Q11, generation during 3Q11 at 3.07 bn kWh was almost flat
YoY. Although the company doubled its UI and secondary energy
incentives of Rs510 mn vs 3Q10, incentives were lower than our
estimates due to lower generation, mainly leading to recurring PAT of
Rs2.3 bn being 9% below our estimate.
Reported PAT declined 48% YoY as the company had booked Rs6.5
bn (Rs5.3 bn post-tax) of prior period revenues, led by the tariff
approval for its 390 MW Dulhasti project during 3Q10.
Decision on competitive bidding for hydro projects awaited
The National Tariff Policy 2006 mandates procurement of contracted
power from public sector generation projects conceived after January
2011, only via competitive tariff-based bidding. However, the Ministry
of Power is contemplating to provide an extension to hydro power
projects from this regime based on the fact that hydro projects have
higher construction and operational risks than thermal projects. If
approved, this would allow NHPC to continue to implement projects
under the assured RoE model, in line with our assumption. Nonallowance of this proposal, however, should be negative for NHPC.
Reducing earnings estimates, target price on project
delays, poor 3Q11 results
NHPC’s capacity addition plan of 1.2 GW during FY12 has been
delayed by three-six months on account of several factors such as
insurgency in Jammu & Kashmir, floods in Leh, environmental
concerns. We cut our EPS by 7-10% for FY11-13E and target price to
Rs29 (from Rs31) due to execution delays and disappointing 3Q11
earnings. We believe NHPC’s RoE will remain depressed, led by its
long-gestation projects with back-ended capacity addition plan. We
maintain our NEUTRAL rating on the stock.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
NHPC Ltd -------------------------------------------------------------------------------Maintain NEUTRAL
3Q11 results disappointed; expect project delays during FY12
● For a like-for-like comparison, NHPC’s 3Q11 results need to be
adjusted for: 1) provision of Rs270 mn (Rs216 mn post-tax)
included in staff cost relating to the prior period (January 2007 to
September 2010); 2) Rs1.4 bn (Rs326 mn post-tax) of
depreciation expenses that need to be provided for if its
depreciation policy was unchanged.
● NHPC’s standalone recurring PAT rose 26% YoY, led by more
than doubling of UI and secondary energy incentives of Rs510 mn
vs 3Q10, but was 9% below our estimate on lower-than-expected
generation and incentives. Generation at 3.07 bn kWh was flat
YoY despite the commissioning of 120 MW Sewa II project.
● Following the guidance of the Comptroller & Auditor General,
NHPC has now aligned its depreciation policy in line with the
CERC norms (used for tariff determination), which should lead to
a fall in its reported depreciation.
● NHPC’s 1.2 GW capacity addition planned during FY12 has been
delayed by three-six months on account of several factors. Due to
weak earnings and execution delays, we cut our earnings by 7-
10% for FY11-13E and lower target price to Rs29 (from Rs31).
We maintain our NEUTRAL rating.
Generation flat YoY; 3Q results disappointed
Despite the commissioning of its 120 MW Sewa-II hydro power project
during 1Q11, generation during 3Q11 at 3.07 bn kWh was almost flat
YoY. Although the company doubled its UI and secondary energy
incentives of Rs510 mn vs 3Q10, incentives were lower than our
estimates due to lower generation, mainly leading to recurring PAT of
Rs2.3 bn being 9% below our estimate.
Reported PAT declined 48% YoY as the company had booked Rs6.5
bn (Rs5.3 bn post-tax) of prior period revenues, led by the tariff
approval for its 390 MW Dulhasti project during 3Q10.
Decision on competitive bidding for hydro projects awaited
The National Tariff Policy 2006 mandates procurement of contracted
power from public sector generation projects conceived after January
2011, only via competitive tariff-based bidding. However, the Ministry
of Power is contemplating to provide an extension to hydro power
projects from this regime based on the fact that hydro projects have
higher construction and operational risks than thermal projects. If
approved, this would allow NHPC to continue to implement projects
under the assured RoE model, in line with our assumption. Nonallowance of this proposal, however, should be negative for NHPC.
Reducing earnings estimates, target price on project
delays, poor 3Q11 results
NHPC’s capacity addition plan of 1.2 GW during FY12 has been
delayed by three-six months on account of several factors such as
insurgency in Jammu & Kashmir, floods in Leh, environmental
concerns. We cut our EPS by 7-10% for FY11-13E and target price to
Rs29 (from Rs31) due to execution delays and disappointing 3Q11
earnings. We believe NHPC’s RoE will remain depressed, led by its
long-gestation projects with back-ended capacity addition plan. We
maintain our NEUTRAL rating on the stock.
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