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Stable earnings; step up on renewables

NHPC Ltd. has reported stable earnings in Q2FY22, with standalone reported revenue/EBITDA/ PAT at Rs27.5bn/Rs18bn/Rs13bn, up 7.5%/14.2%/0.5% YoY, respectively. Major factors impacting the numbers were – 1) Higher net generation at 9,912MUs (up 5.3% YoY), 2) reduction in employee cost by 10.9% YoY to Rs3.1bn, and 3) lower other income at Rs1.7bn (down 60% YoY) mainly due to lower LPS. Q2FY22 performance takes the company’s H1FY22 reported EPS to Rs2.2 (up 9.7% YoY), and we believe it is on track to achieve an EPS of Rs3.2 in FY22E. NHPC’s RE initiatives will be a major value creator in the medium term and the company continues to participate aggressively. Maintain BUY with revised DCF-based target price of Rs45 (earlier: Rs35), incorporating platform value for renewables after the 1GW solar capacity won recently in the CPSU scheme. We will update with more details after the post-result call to be held on 16th Nov’21.

* Standalone generation increases by 5.3% YoY: On standalone basis, revenue for the quarter increased 7.5% to Rs27.5bn, aided by 5.3% YoY increase in net generation at 9,912, while EBITDA was up 14% at Rs18bn, aided by 11% YoY reduction in employee expense. Reported PAT at Rs13bn was up 0.5% YoY, impacted due to 60% reduction in other income at Rs1.7bn due to lower late payment surcharges. Q2FY22 PAF was 98.3% (vs 91.7% in Q1FY21). Total incentive income in Q2FY22 increased 10% YoY to Rs2.2bn. With this, H1FY22 EPS at Rs2.2 increases 9.7% YoY, and the company is on track to achieve total EPS of Rs3.2 in FY22E. Receivables remain steady at Rs34.3bn. Consolidated PAT increased 12.4% YoY to Rs13.4bn.

* Continues to be aggressive on renewables front: NHPC is targeting to develop 5GW RE capacity (including floating solar projects) over the next three years and 25GW in the next 7-8 years. It will create a renewable energy subsidiary for expediting the processes and develop all projects through the ownership mode. Projects under implementation include: 500MW floating solar capacity across Odisha through a JV, 100MW floating solar in Telangana, 1GW CPSE solar project, 50MW floating solar in Kerala, 140MW solar project at Odisha, 600MW UMREPP in Jaisalmer, Rajasthan, 600MW solar project in TN, 1,200MW UMREPP in Jalaun, UP. NHPC has won another 1GW through the CPSU scheme bid, at a tariff of Rs2.45/unit with a VGF component of Rs4.5mn/MW.

Infuses equity in JVs: NHPC's Board has approved an equity investment of Rs74mn in the JV with GEDCOL for implementation of 500MW floating solar projects in Odisha. Further, Rs510mn equity investment has been made in JV for implementation of 850MW Ratle project by the company

* Valuations remain attractive: We maintain our BUY rating on the stock but revise our DCF-based target price to Rs45 (earlier: Rs35), incorporating platform value for renewables after the 1GW solar capacity won recently in the CPSU scheme. On FY24E basis, the stock is trading at 7x P/E and 0.9x P/B and 5.4% dividend yield.

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