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Earnings robust; projects on track

Key takeaways from NHPC’s Q3FY21 conference call: 1) Generation was lower YoY but PAF remains higher, 2) NHPC is on track with respect to the under construction of hydro projects, 3) company has an ambitious solar project pipeline consisting of several floating solar projects, 1.2GW project in UP and 2GW CPSE solar project (to be undertaken in trader mode), 4) receivables, which were Rs41.7bn at Q3FY21-end, have declined significantly to Rs27.8bn currently, helped especially by the disbursal of loans by PFC/REC to key states including UP and J&K, and 5) FY21/FY22 capex target is Rs54bn/Rs82bn. We maintain our BUY rating and DCF-based target price of Rs34 on NHPC.

* Generation lower but PAF remains higher: Generated 3,797MU in Q3FY21 vs 4,515MU in Q3FY20 (excluding infirm power from Parbati-II). 9MFY21 generation was down 4% to 21,262MU vs 22,152MU. Lower generation was due to shutdown of all units of Sewa-II for restoration works and lower water availability at many power stations. PAF in 9MFY21 was 88.59% vs 87.47% in 9MFY20. PAF for Q3FY21 was 83.11% vs 81.43% in Q3FY20.

Update on projects:

* Subansiri Lower: Work has resumed from 15th Oct’20. Target commissioning is by Aug’22 for one unit and by Aug’23 for all units. PPA for 130MW capacity remains pending, for which the company is in discussion with Delhi. Cumulative expenditure for the project is Rs128.6bn. Levelised tariff Rs5/unit.

* Parbati-II: Units-I & II were synchronised by Apr’20 and units-III & IV in Jul’20. Target completion of the balance tunnel work and commissioning of the project is by H2FY22 (2.3km of tunnel work is pending). Project cost is Rs100bn and Rs87bn spent till Dec’20. NHPC has applied for cost revision. Levelised tariff is Rs5.58/unit.

* Dibang – Forest clearance stage-II approval granted. Nearly Rs16bn worth of investment approval for pre-investment activities also granted. PIB memo has been given to the MoP.

* Jal Power Rangit: – NHPC had bid for Rs1.65bn for 120MW project, which had been approved by the NCLT Hyderabad bench. Total cost of the project is estimated at Rs9.43bn. Levelised tariff is Rs4.40/unit. Timeline for the completion of balance work is 42 months from CCEA approval.

* MoU signed with J&K government to install over 4.1GW: NHPC has signed an MoU with J&K government for the execution of five hydro projects totaling 4,134MW in the Union Territory – implementation of 850MW Ratle HEP through a JV, and execution of 930MW Kirthai-II HEP, 1,856MW Sawalkot HEP, 240MW Uri-I (stage-II) and 258MW Dulhasti (stage-II). Total investment in all the projects is estimated at Rs350bn and will ensure 24x7 power supply to all consumers in the state.

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