NHPC (Maintain HOLD) - 3QFY12 - Result Update (IFIN)

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3QFY12 accounting policy changes drag profit

Accounting policy changes: NHPC revised its policy of capitalisation of corporate office, regional office, survey expenses and general overhead expenses, due to which Rs 1bn was charged as revenue expenses. According to the management, Rs 0.8bn are non-recurring and represent expenses on Kotli Bhel project’s survey that would be capitalised on receipt of MoEF’s approval and the balance Rs 0.2 bn would be recurring expenses. The above changes would not entail any change in tariffs/cash flow and hence are not a concern. 

Impact of prior-period and non-recurring items: After adjusting for impact of prior-period and non-recurring items, like-to-like PAT for 3QFY12 improved 62% YoY to Rs 2.6 bn vs. PAT of Rs 1.6 bn in 3QFY11 and RPAT of 2.1 bn in 3QFY12.

Uri I and Salal project update: Backed by MoP, NHPC has ruled out any scope of transferring its projects in J&K state. An event in the form of withdrawal of J&K’s demand for project transfer and/or capacity addition estimated would be key triggers for the stock to outperform.

Capacity addition highlights: While the NHPC management has maintained its capacity addition estimates, we maintain our view and expect NHPC (standalone) to add capacity of 275 MW in FY12, 937 MW in FY13, 660 MW in FY14 and 2300 MW in FY15. Accordingly, NHPC is estimated to benefit from incremental units sold of 9% in FY13 and 10% in FY14.

Valuations and Recommendation: NHPC share price has under- performed the Sensex by 18% in the last 12 months, but have outperformed it by 10% in the last 1 month. At CMP, NHPC trades at PB(x) of 0.9xFY13E. We have valued NHPC using DCF and arrived at a target price of Rs. 23.5. We maintain our HOLD rating. At our target price, NHPC would trade at P/B(x) of 1.1x/ FY12E/FY13E.