Should You Buy This Navratna Stock Amidst Rs 4,000 Crore OFS? JM Financial Sees 24% Upside!

Shares of NHPC experienced a 5% drop at the opening bell today as the government announced plans to sell up to 3.5% stake in the public sector undertaking (PSU) through an Offer for Sale (OFS) at a floor price of Rs 66 per share, a discount of over 9% to yesterday's closing price. The state-run hydropower producer, NHPC, had witnessed a 1.2% surge in its stock value on January 17, closing at Rs 73.25 per share, but at 9:20 am today, the stock was trading at Rs 69.70 per share.

In a regulatory filing on January 17, NHPC disclosed that the OFS for non-retail investors would commence on January 18, with retail investors getting their turn to bid on Friday. The government plans to sell over 25 crore equity shares in NHPC, with a green shoe option to sell an additional 10 crore shares, all at the floor price of Rs 66 per share. Analysts estimate that the OFS could potentially contribute around Rs 2,300 crore to the exchequer.

According to a recent brokerage report by JM Financial, NHPC stands as the nation's leading hydropower utility, boasting an aggregate installed capacity of 7,071 MW, equivalent to 15% of India's total installed hydropower capacity. The report highlights that NHPC's ongoing projects, with a combined capacity of 10,515 MW (hydro + renewables), are set to increase its installed capacity by 50% by FY26. This growth is expected to result in a Revenue CAGR of 20%, EBITDA CAGR of 24% and PAT CAGR of 11% over FY23 to FY26.

JM Financial maintains a positive outlook on NHPC, emphasizing its position as the 'only' large utility with a 100% green energy portfolio. The report raises the target price to Rs 85 per share (SOTP-based), implying a 10 times FY26 blended EV per EBITDA and 1.6 times FY26 P/B multiple. With a dividend yield of 2.5%, NHPC appears to be a promising investment, especially given the nation's focus on enhancing hydropower for grid balancing and pumped hydro storage.

The brokerage report points out that NHPC is on track to commission 2,800 MW of new projects, including the Subansiri (2,000 MW) and Parbati-II (800 MW), soon. This would mark 40% growth in the company's installed capacity, with further projects in the pipeline contributing to a sustained growth momentum.

NHPC's business model, based on the operation of hydroelectric plants (HEP) under a regulated model, ensures stable cash flows. The regulated equity is projected to grow by 75%, reaching Rs 22,600 crore in FY25 from Rs 12,900 crore in FY23, thereby adding nearly Rs 1,000 crore to the net profit. The EBITDA and PAT are anticipated to increase by 48% and 26%, respectively during the same period.

Furthermore, NHPC is venturing into Pumped-hydro projects (PSP), submitting proposals for 525 MW Indra Sagar Omkareshwar PSP and 800 MW Tekwa-2 to the Central Electricity Authority (CEA). The company has also signed Memorandums of Understanding (MoUs) for pumped hydro storage projects with Maharashtra, Odisha, and Andhra Pradesh, totalling an additional 9,300 MW.

The report concludes by highlighting the growth in NHPC's hydropower projects, with 3,634 MW under construction and expected to be commissioned gradually over the next 5-6 years. This expansion strategy aims to break the stagnation observed in hydropower generation from FY15 to FY23, providing a positive outlook for NHPC and its investors.

NHPC reported a consolidated profit of Rs 1,546 crore for Q2FY24, ending September 2023, marking a 0.7% YoY increase. The revenue from operations also saw an 11.6% YoY growth, reaching Rs 2,931.3 crore during the same quarter. The company is yet to announce its Q3 earnings.

The shares of NHPC were seen trading with cuts of 4.5% at Rs 69.85 per share as of 11:55 am on the National Stock Exchange (NSE). The stock has soared 79% in the last one year.