Buy NHPC Ltd For Target Rs.35 - ICICI Securities
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Steady earnings buoyed by surcharge income
NHPC has reported good earnings in Q4FY21. Standalone reported PAT was up 5.6% at Rs4bn, mainly due to higher surcharge income. However, adjusted PAT was up 21.2% YoY at Rs4.6bn (one-time provision of Rs0.6bn). Standalone reported revenue/EBITDA was Rs13.4bn / Rs4.3bn, down 30% / 22.5% YoY respectively.
The quarter’s performance takes the company’s FY21 adjusted EPS to Rs3.2 (up 7.5% YoY) which, considering the company had provided Rs1.9bn rebate on fixed costs in Q1FY21, is a significant achievement. NHPC has also declared a final dividend of Rs0.35/sh, taking the total dividend to Rs1.6/sh (implying 6% yield at CMP). We maintain BUY on the stock, but slightly increase our target price to Rs35 (earlier Rs34).
We will update with more details after the post-result call to be held next week
* Weak quarterly operational performance supported by higher surcharge income: NHPC’s standalone hydro generation declined 25% YoY at 2,946MUs for Q4FY21 due to low water flow at most of its plants. However, higher late payment surcharge (at Rs3.3bn) helped increase ‘other income’ by 13% YoY. On standalone basis, reported PAT came in at Rs4bn, up 5.6% YoY. However, adjusted PAT was up 21.2% YoY at Rs4.6bn. Company made a provision of Rs0.6bn (post-tax) for Parbati-III and Tawang-II projects during the quarter. Standalone revenue/EBIITDA for the quarter declined 30%/ 22.5% at Rs13.4bn/Rs4.3bn respectively, due to lower generation. Consolidated reported PAT (attributable to the company) for Q4FY21 was up 171% at Rs4.3bn.
* FY21 adjusted EPS 7.5% YoY higher at Rs3.2: The quarter’s performance takes the company’s FY21 adjusted profit to Rs32bn and EPS to Rs3.2 (rise of 7.5% YoY) which, considering the company had provided Rs1.9bn rebate on fixed costs in Q1FY21, is a significant achievement. Consolidated reported PAT for FY21 was up 7.1% YoY at Rs35.9bn.
* Final dividend of Rs0.35 takes FY21 total dividend to Rs1.6: NHPC has declared a final dividend of Rs0.35/sh taking the total FY21 dividend to Rs1.6/sh, implying 6% yield at CMP. NHPC follows the GoI-mandated dividend policy (higher of 5% of net worth or 30% of PAT), which will continue to be >Rs1.5/sh p.a. going forward.
* Receivables decline further: On account of receipt through the PFC / REC Aatmanirbhar scheme as well as pending payments from states, NHPC’s receivables reduced to Rs32bn at FY21-end, which is 36% lower from the Q2FY21- end level of Rs50bn and 16% lower than FY20-end level.
* Valuations remain attractive: NHPC is the only ‘completely green’ PSU generating company as well as the largest in the country. The stock is trading at 7.6x P/E and 0.8x P/B on FY23E basis. Its dividend yield is >6%. We maintain our BUY rating, but slightly increase our DCF-based target price to Rs35 (earlier Rs34), incorporating higher ‘other income’.
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