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Published on 4/07/2020 2:31:21 PM | Source: Emkay Global Financial Services Ltd

Buy NHPC Ltd For Target Rs. 27 - Emkay Global

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PAT boosted by higher secondary energy; Parbati CoD in FY22

* In Q4FY20, generation increased 11.1% yoy to 3.94bn units due to improved water availability. Revenue rose 31.1% yoy to Rs19.1bn, driven by increased income from secondary energy (+79% yoy) and higher deviation charges (+354% yoy).

* EBITDA growth softened to 13.6%yoy largely due to an increase in other expenses (+145% yoy). This was offset by a fall in interest expenses (-32.1% yoy) and rise in other income (+63.2% yoy), which led to a 134% yoy rise in adjusted PAT to Rs3.8bn.

* NHPC has guided for the full commissioning of Parbati II project by Q4FY22, which will enhance the regulated equity to Rs158.9bn in Q1FY23 (vs Rs128.9bn in FY20). We expect Subansiri project to achieve CoD in FY25, which would scale regulated equity to Rs220bn.

* Furthermore, the company has guided for a capex target of Rs53bn/Rs76bn in FY21/22. We have adjusted our FY21/22 earnings estimates to factor in FY20 results and capex guidance. We marginally lower our SoTP to Rs27 vs Rs28 earlier and retain Buy.

Earnings boosted by higher secondary energy and deviation charges: Generation rose 11.1% yoy to 3.9bn units, driven by improved water availability. PAF, however, fell marginally to 73.7% in Q4FY20 vs. 74.1% yoy, while for FY20 also, it edged lower to 84% vs. 85% yoy primarily due to shut down of Baira Sul and Chamera stations. Revenues rose by 31.1% yoy to Rs19.1bn, driven by increased income from secondary energy (+79% yoy to Rs2.3bn) and higher deviation charges (+354% yoy to Rs429mn). Other expenses rose 145% yoy due to higher expenses related to CSR activity, security expenses in J&K project and insurance expenses. However, employee expenses declined 13.1% yoy to Rs3.8bn, which led to a 13.6% yoy rise in EBITDA to Rs5.6bn. Interest expenses declined 32.1% yoy to Rs1.5bn (due to capitalization of Subansiri’s finance cost), while depreciation was down 6.2% yoy to Rs3.9bn due to an enhancement in hydro’s asset life. Other income increased 63.2% yoy to Rs3.9bn due to higher dividend income of Rs2.1bn. Tax expenses were flat yoy at Rs1.2 bn. Reported PAT, however, was down 22.2% yoy to Rs3.8bn, due to lower rate regulated income booked in Q4FY20 of Rs407mn vs. Rs5.7bn yoy. However, after adjusting for one off incomes in Q4FY19, APAT increased by 134% yoy in Q4FY20.

Reiterate Buy on attractive valuations:

We have adjusted our earnings estimates to factor in FY20 results and capex guidance provided by the company. Parbati II is expected to achieve CoD by FY22 end, which will enhance the regulated equity to Rs158.9bn in FY23 from Rs129.0bn in FY20. Construction works at the Subansiri site is progressing well and we expect it to achieve CoD by FY25. We marginally lower our SoTP to Rs27 vs Rs28 earlier and retain Buy as the stock is attractively valued at 0.6x its FY22 P/BV. Key risk is any further delay in the execution of key projects.

 

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