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NHPC makes a splash

NHPC Ltd is the largest hydropower-generating utility in the country with an aggregate installed capacity of 7,071MW (15% of India’s installed hydropower capacity). With 10,515MW of projects under construction (hydro + renewables), the company’s installed capacity with regulated return is set to grow by 3,420 MW by FY26, up by 50% after a gap of 3 years resulting in Revenue/EBITDA/PAT CAGR of 20%/24%/11% over FY23-26E. With a dividend yield of 2.5%, and nation’s priority to enhance hydropower due to its loadfollowing ability for grid balancing and pumped hydro storage in place, we maintain our BUY rating on the ‘only’ large utility with 100% green energy portfolio and raise the TP to INR 85/sh (SOTP-based), implying 10x FY26 blended EV/EBITDA and 1.6x FY26 P/B.

* Installed capacity to grow 40%: NHPC is slated to commission 2,000 MW (Subansiri) + 800 MW (Parbati-II) soon, adding 2,800MW to its existing portfolio of 7,071 MW after a gap of five years

* Regulatory business model providing stable cash flows: Hydroelectric plants (HEP) of NHPC operate on a regulated model, which provides a post-tax ROE of 15.5/16.5% depending upon the pondage (increased to 16%/17% for new projects in draft CERC Tariff Regulation 2024-29). The long-term power purchase agreements (PPAs) along with stable tariff as determined by the Central Electricity Regulatory Commission (CERC) allow high cash flow visibility. NHPC’s core RoE also benefits from the incentives earned through secondary charges, capacity charges and deviation charges.

* Regulated Equity to grow: The regulated equity is estimated to grow by 75% from Rs 129bn in FY23 to Rs 226bn in FY25 adding almost INR 10bn to the net profit. The EBITDA/ PAT is to increase from Rs 62,681/42,347mn in FY23 to Rs 93,019/53,286mn in FY25, up by +48%/26% respectively.

* Forays into Pumped-hydro projects (PSP): The company has submitted PFR for 525MW Indra Sagar Omkareshwar PSP and 800MW Tekwa-2 for approvals to Central Electricity Authority (CEA). Additionally, it has signed MoUs with Maharashtra for four projects (1,150 MW Kalu, 2,250MW Savitri, 2,400MW Jalond, 1,550MW Kengadi; total 7,350 MW), Odisha (2,000MW) and Andhra Pradesh (950MW Kamlapadu, 1,000MW Yaganti; total 1,950MW) for developing pumpedhydro storage projects. (Pumped storage hydropower: Revolution is Here!)

* Growth momentum to sustain: Another 3,634 MW of hydropower projects are under construction, which will be commissioned gradually in the next 5-6 years (the company believes to commission all by FY27) resulting in the addition of certain MW every year. This has never happened before. The hydropower generation has remained largely stagnant during FY15 to FY23 (standalone 22,038MU/ 24,619MU during FY15/23)

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