Published on 22/10/2020 9:26:07 AM | Source: Emkay Global Financial Services Ltd

Buy NHPC Ltd For Target Rs.27 - Emkay Global

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Generation falls on lower water availability; APAT beats estimate

* Generation fell 5.5% yoy to 8.1bn units as two units of Chamera II power station were shut. Blended realization rose 0.8% yoy to Rs3.23/unit. However, revenue increased 4.0% yoy to Rs25.2bn, driven by incremental revenue from the power trading business.

* PLF declined to 68% in Q1FY21 from 72% a year ago, due to a fall in generation, however, PAF was flat at 91% yoy. EBITDA fell 5.5% yoy to Rs14.2bn, primarily due to power trading expenses of Rs2.1bn. Adjusted PAT rose 3% yoy to Rs9.1bn, above our estimate.

( NHPC has guided for the full commissioning of Parbati II project by Q4FY22, which will enhance 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.

* The company has guided for capex of Rs53bn/Rs76bn in FY21/22 (equity contribution - Rs20.7bn/Rs30.5bn). We maintain FY21/22E EPS and SoTP-based TP of Rs27. We retain Buy on attractive valuations, capacity additions and a high dividend yield of 7%.


Revenue growth led by power trading business: Revenue increased 4% yoy to Rs25.2bn (our estimate of Rs23.4), driven by Rs2.1bn in incremental revenue from the power trading business. However, generation declined 5.5% yoy to 8.1bn units due to the shutdown of two units of Chamera II power station for the restoration work, and low water availability at other stations. EBITDA fell 5.5% yoy to Rs14.2bn due to power trading expenses of Rs2.1bn. Employee expenses declined 8.7% yoy due to superannuation of employees. Depreciation declined 14.6% yoy to Rs3.3bn due to low depreciation expenses at the Dulhasti Power stations as the plant completed its 12 years of operations (post which depreciation falls drastically for the stations) and also due to an increase in the life of hydro assets. Interest expenses fell sharply by 38% yoy to Rs1.5bn due to capitalization of Subansiri finance cost (~Rs690mn) and also due to repayment and refinancing of existing loans.

During the quarter, NHPC paid a one-time rebate of Rs1.85bn to the discoms as a relief as per the direction of the government. Tax expenses came in at Rs1.6bn in Q1FY21 vs. Rs2.9bn in Q1FY20. While reported PAT fell 18% yoy to Rs7.2bn, adj. PAT grew 3% yoy to Rs9.1bn (higher than our estimate of Rs8.2bn).


Reiterate Buy on attractive valuations: We have maintained our FY21/22E EPS and SoTPbased TP of Rs27. Parbati II is expected to achieve CoD by FY22-end, which will enhance 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 maintain our SoTP of Rs27 and retain Buy as the stock is attractively valued at 0.6x its FY22E P/BV. Key risk is any further delay in the execution of key projects.


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