Reduce NHPC Ltd. For Target Rs.77 By Elara Captil
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Muted generation drags financials
Subdued generation led by seasonality
NHPC’s (NHPC IN) 9MFY24 generation declined 10% YoY to 19.3BU versus 21.6BU in the corresponding period last year. Generation in Q3FY24 declined 28% YoY to 2.5BUs as against 3.6BU in Q3FY23. This was led by seasonality. Plant availability factor (PAF) deteriorated to 85.17% in 9M FY24 from 88.75% last year. PAF for Q3FY24 declined to 71.73% versus 88.25% in Q3FY23. Incentive income saw a sharp decline in Q3FY24 to INR 940mn versus INR 1,349.6mn last year. Incentives from secondary energy stood at 162.4mn in Q3FY24 versus 136.1mn last year. Deviation charges stood at INR 132.7mn in Q3FY24 versus INR 292mn in Q3 FY23.
NHPC's hydro plants see lower generation
Revenues, on consolidated level, declined 20.4% YoY to INR 20.5bn due to lower generation from NHPC's hydro plants. EBITDA declined 58% YoY to INR 7.2bn. Operating margin deteriorated to 35% in Q3FY24 from 66% in Q3FY23. PBT before movement in regulatory deferral account balances declined 41% YoY to INR 8.2bn. Other income increased 355% YoY to INR 4.9bn but this included INR 3.09bn insurance claimed for losses to its assets due to flash floods. Reported PAT declined 19% YoY to INR 6.2bn.
Delay in commissioning timelines
Commissioning of two large projects — Parbati-II (800MW) and Subansiri Lower (2,000MW) — has slipped into FY25E and FY26E, respectively. Installed capacity (standalone; hydro), as of December 2023, was 5,551MW, and may reach 6,351MW/8,351MW by FY25E/26E, post the commissioning of Subansiri Lower (2,000MW) and Parbati II (800MW) projects. Regulated equity was INR 129bn, as of Mar-23 and may reach INR 224bn, as of FY27. NHPC has projects aggregating to 13.9GW under various implementation stages, including 10.4GW of projects under construction.
Valuations: Revise to Reduce with a higher TP of INR 77
We revise NHPC to Reduce from Buy due to the recent stock price appreciation, but we continue to remain positive on the stock given: 1) high dividend yield and 2) growth post commissioning of Parbati II/Subansiri projects. We revise earnings estimates for FY24E/26E. We revise our TP to INR 77 (from INR 60) on 2.0x FY26E regulated equity.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
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