Reiterate ADD on NHPC - Lower generation impacts earnings - HDFC Securities

Mr. Anuj Upadhyay, Institutional Research Analyst, HDFC Securities

NHPC's revenue declined to INR 20.9bn (-30%/-36% YoY/QoQ) in Q4FY21, given 21.6% YoY fall in generation due to shutting down of the Sewa unit and lower water availability in the reservoir. EBITDA also declined 34.6% YoY to INR5.1bn on the back of lower revenue. Depreciation declined 38.8% YoY to INR2.4bn while other income increased 13.4% YoY due to higher late payment surcharge income. After adjusting for one-offs related to provisions for Tawang and Sewa, adjusted PAT declined by 20% YoY to INR4.8bn in Q4FY21, while reported PAT was up 5.6% YoY to INR4.0bn. We have revised our SoTP target price to INR29 from INR27 earlier (+ 9% from the CMP, valuation - core business - 1.3x P/BV, RoE - 10.0%, CoE - 13.5% and FY23BV of INR36/share), factoring in improved cash flow and cash balances in FY21. Full dividend for FY21 has been INR1.6/share (payout 50% and dividend yield 6%). Hence, we reiterate our ADD rating on NHPC.

Revenue declined on lower generation: Generation declined 21.6% YoY to 3.1bn unit due to shutting down of the Sewa unit and lower water availability in the reservoir. Accordingly, revenue declined to INR 20.9bn (-30%/-36% YoY/QoQ) in Q4FY21, as blended realisation fell 10.6% YoY to INR4.9/unit. Generation expenses/employee expenses/other expenses also declined 21%/6%/22%, in line with lower generation in Q4FY21. Accordingly, EBITDA declined 34.6% YoY to INR5.1bn. Depreciation declined 38.8% YoY to INR2.4bn while other income increased 13.4% YoY due to higher late payment surcharge income. After adjusting for one-offs related to provisions for Tawang and Sewa, adjusted PAT declined by 20% YoY to INR4.8bn in Q4FY21, while reported PAT was up 5.6% YoY to INR4.0bn.

Management discussion: NHPC incurred Capex of INR35.7bn in FY21 and plans to incur another INR91bn and INR80bn in FY22E and FY23E respectively on various under-construction hydro and solar projects (INR25bn each in FY22/FY23). It expects Parbati II and one unit of Subansiri to achieve CoD by July 2022 and August 2023 respectively. These two projects will increase regulated equity by 70% to INR220bn in FY25E vs. INR130bn in FY21. Strong capitalisation would continue to drive growth in regulated equity, going ahead, as the company has lined up Capex of INR1tn over the next decade. It generates sufficient cash flow to meet its equity requirement.

Reiterate ADD: We have revised our SoTP target price to INR29 from INR27 earlier (+ 9% from the CMP, valuation - core business - 1.3x P/BV, RoE - 10.0%, CoE - 13.5% and FY23BV of INR36/share), factoring in improved cash flow and improved cash balances in FY21. Our positive stance on the stock is premised on growth in regulated equity, risk-averse regulatory business model, strong cash flow generation, and attractive valuation (0.7x FY23 BV).

Shares of NHPC LTD. was last trading in BSE at Rs.27.1 as compared to the previous close of Rs. 26.85. The total number of shares traded during the day was 1456423 in over 3245 trades.

The stock hit an intraday high of Rs. 27.2 and intraday low of 26.9. The net turnover during the day was Rs. 39427931.

Source : Equity Bulls

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