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Higher other income offsets lower generation

Capex run-rate on the rise; maintain Neutral

* NHPC’s 4QFY21 result highlights the benefit of higher late payment surcharge income. Standalone PAT rose 6% YoY to INR4b.

* Capex run-rate is expected to increase on account of investment in new projects. However, much of their commissioning remains 3-5 years away, implying lower FCF and a drag on RoEs in the near term. We maintain our Neutral rating with a TP of INR28/share.

Profit in line as higher other income offsets decline in generation

* Standalone PAT rose 6% YoY to INR4b (est. INR3.8b), led by higher other income and lower Survey and Investigation (S&I) expense for Tawang. These were offset by lower generation.

* Standalone other income rose 13% YoY to INR4.4b on higher late payment surcharge income. S&I expense for Tawang was lower by INR0.7b on a YoY basis.

* Generation fell 26% YoY to 2.9BU in 4QFY21, based on data available at CEA. The same was on account of lower water availability.

* Incentives declined 18% YoY to INR2.35b on lower secondary energy incentive. The latter fell 35% YoY to INR1.5b. PAF incentives in 4QFY21 more than doubled to INR0.5b (v/s INR0.15b in FY20). Deviation income fell 10% YoY to INR0.4b.

* Interest costs were higher at INR2.2b (v/s INR1.5b in FY20) due to capitalization of certain borrowing costs for Subansiri and Parbati. As per the management, the same has been recognized as rate regulated income.

* Trade receivables declined to INR32b at the end of 4Q (v/s INR40b at the end of 9MFY21). Of these, overdue (over 45 days) stands at INR18b (v/s INR32b in 9MFY21). On a sequential basis, the decline was led by money received from Uttar Pradesh. Receivable days still remain high ~140 days. Major receivables are from J&K, Uttar Pradesh, Punjab, and West Bengal.

* PAT for its subsidiary, NHDC, was lower at INR6.7b in FY21 (v/s INR9.4b in FY20). Consolidated adjusted PAT was up 4.5% YoY at INR30b in FY21.

New projects to increase capex run-rate; maintain Neutral

* Restart of construction works at Lower Subansiri is a positive, but progress on the same needs to be watched. In the past, agitation by locals impacted construction activity. Moreover, commissioning for the project is still some time away (FY24 as per the management).

* Capex run-rate is expected to increase as the company is investing/exploring new projects, which will reduce FCF and drag RoEs in the near term. Frequent delays in commissioning timelines and cost overruns is a cause for concern. We maintain our Neutral rating, with a DCFbased TP of INR28/share.

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