NHPC (Maintain HOLD) - 1QFY12 - Result Update : IFCI research

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

Adjusted PAT up 15%, Maintain HOLD

Prior-period and non-recurring items propel PAT: After adjustments, 1QFY12 like-to-like APAT increased15% YoY to Rs 5.9 bn vs. APAT of Rs 5.14 bn in 1QFY11. Capacity addition envisaged remains the next trigger for stock to outperform. Maintain HOLD.

Marginal impact on delay in execution of Parbati III 520 MW: We envisage delay in execution of Parbati III (520 MW) project from 4QFY12 to 2QFY13, lowering units sold by 143 MU or 1% of estimated units sold. NHPC (Standalone) will add capacity of 515 MW in FY12E, 697 MW in FY13E, 660 MW in FY14E and 2300 MW in FY15E. Most of the capacity addition is expected towards the end of each financial year and hence revenue accretion would flow to next year. We estimate NHPC to benefit from incremental units sold of 1% in FY12E, 16% in FY13E and 4% in FY14E.

RoE in 1QFY12 grossed up with MAT rates: In 1QFY12, RoE was grossed up with MAT rate. However, we expect RoE to be grossed up with corporate tax rate in 4QFY12, which would entail incremental earnings through an opportunity of tax arbitrage. Our assumption is based on estimated tax benefit and slippages in capacity addition.

Outlook: NHPC is somewhat insulated from the major issues faced by the power utility sector such as fuel linkage, demand slow-down by SEBs due to higher cost of power and over-hang on receivables. However, issues such as geological surprises, a hostile environment in Jammu and Kashmir, and protests in Arunachal Pradesh over-shadow NHPC’s estimated capacity addition schedules and hurt earnings. We highlight that finalization of tariff by CERC for 9 out of 12 power stations would boost cash flow. Further, for ~4.5 GW projects under construction, 85% of normative equity contribution required has been infused and the cash would be deployed to develop ~ 16 GW capacity in pipeline.

Valuations and Recommendation: At CMP, NHPC trades at a PB(x) of 1.2x FY12E and 1.1x FY13E. We maintain a HOLD rating with a price target of Rs 28.