NHPC - Receivables decline; pending issues cleared - ICICI Securities

There have been four important developments in the past week for NHPC: 1) Rs7.34bn received from PFC for the pending dues from J&K - this and other receivables helping reduce receivables by 35% from Rs50bn at Q2FY21-end; 2) Supreme Court allowed processing of tenders for completion of balance works of Teesta-VI HEP; 3) NCLT, Hyderabad bench, approved NHPC's Rs1.65bn resolution plan for the 120MW Jal Power Rangit stage-IV project in Sikkim; and 4) MoU has been signed with J&K government to develop more than 4.1GW of hydro capacity in the UT. All these developments are positive for NHPC and will help boost growth and earnings. Maintain BUY.

- Receipt through PFC/REC scheme reduces receivables: NHPC received Rs7.34bn from PFC on account of dues pending from J&K UT through the PFC/REC scheme, under UDAY limit relaxation. The payment comprised of Rs6.73bn as energy dues and Rs0.61bn as power trading dues. During Q3FY21, receivables on account of PFC/REC scheme (~Rs12bn-13bn, primarily for J&K and UP) and others helped reduce overall receivables by ~35% from Q2FY21-end levels of Rs50bn.

- Supreme Court allows bid for processing tenders for Teesta-VI: As per media reports, the Supreme Court has allowed NHPC to process the tenders for completion of balance works of 500MW Teesta-VI HEP in Sikkim. The project, which was acquired through NCLT (from Lanco) in Oct'19, is currently a 100% subsidiary of NHPC, but is expected to be merged with NHPC's standalone entity, enabling cheaper debt funding. The estimated project cost is Rs57.5bn (at Jul'18 price level, including NHPC's bid of Rs9bn) and is expected to commission by FY25. Two lots of civil work, one of HM and four lots of E&M work have already been awarded.

- NCLT approves NHPC's Rangit stage-IV resolution plan: In another significant development, NCLT Hyderabad bench has approved NHPC's Rs1.65bn resolution plan for the 120MW Jal Power Corporation's Rangit stage-IV project in Sikkim, submitted in Jan'20. NHPC's offer was higher than the liquidation value (Rs514mn) and also the fair value (Rs1.58bn) as per the registered valuers for the project, which was subsequently approved by the committee of creditors. Timeline for completion of balance works is 42 months from CCEA approval.

- MoU signed with J&K government to install over 4.1GW: NHPC has signed an MoU with J&K government for execution of five hydro projects totaling 4,134MW in the Union Territory - implementation of 850MW Ratle HEP through a JV, and execution of 930MW Kirthai-II HEP, 1,856MW Sawalkot HEP, 240MW Uri-I (stage-II) and 258MW Dulhasti (stage-II). Total investment in all the projects is estimated at Rs350bn and will ensure 24x7 power supply to all consumers in the state.

- High dividend yield and attractive valuations: NHPC's increase in standalone capacity from 5,551MW to 8,351MW in FY24E takes its regulated equity to Rs221bn in FY24E, at a CAGR of 14.5%, resulting in earnings CAGR of over 11%. At CMP of Rs24.8/share, the stock is trading at 7.1 P/E and 0.7 P/B on FY23E basis. Its dividend yield is 6.6%. We maintain our BUY rating and target price of Rs34 and we believe the company will be able to maintain its dividend payouts as per the DIPAM guidelines, despite the planned capex (as free cashflows are expected to significantly increase once the 2,800MW currently under construction becomes operational by FY24E).

Shares of NHPC LTD. was last trading in BSE at Rs.25.1 as compared to the previous close of Rs. 24.75. The total number of shares traded during the day was 819949 in over 2013 trades.

The stock hit an intraday high of Rs. 25.45 and intraday low of 25. The net turnover during the day was Rs. 20640798.

Source : Equity Bulls

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