ICICI Securities in its recently published report on NHPC Limited (Formerly National Hydroelectric Power Corporation) suggests buy the stocks of the company for a target price of Rs 46 apiece. If we consider the brokerage's estimated target price, the stocks could witness a potential-jump of 36% in 12 months. According to the brokerage firm, the company Q1 FY23 reported Good performance, which is driven by a higher generation. In Q1FY23, the company reported NHPC's reported standalone PAT for Q1FY23 was up 15.1% YoY to Rs10.5bn.
Stock Outlook & Returns
Today, 11 August, the share of the company closed at Rs 33.85 apiece after a falling 0.44%. The share price is currently Rs 8.55 above the 52 week low level and Rs 3.75 below the 52 week high level, respectively.
The 52-week low of the stock is Rs 25.30 apiece, which was recorded on 11 August 20221, and the 52-week high is Rs 37.60 apiece, which was recorded on 22 April 2022, respectively.
In the past 1 month, the share price slid down by 5.05%, whereas, moved up by 5.12% in the past 1 month. Over the year, the shares gained nearly 20.19%, whereas, in the past 3 years, the shares gained 53.51%. In the past 5 years, the shares gained 11.72%.
The ROE of the stock is 10.09%. TTM PE ratio is 9.64 and PB ratio is 0.91. TTM EPS is Rs 3.51. The dividend yield is 5.35% and the face value is Ra 10, respectively. It has a market capitalization of Rs 35,258.07 crore.
|Target Price||Rs 46|
Good performance boosted by strong growth in generation
According to the brokerage firm, "On standalone basis, revenue rose 19.5% YoY to Rs 25.9bn aided by 11.3% YoY increase in net generation at 8,009MU. EBITDA increased 10% YoY to Rs 14.1bn helped by 3.2% YoY decline in employee cost to Rs 3.1bn, but impacted by 35.3% YoY increase in 'other expenses' to Rs 7.8bn. This was mainly due to an impairment provision of Rs 1,055.6mn for the Loktak Downstream Hydroelectric project, where NHPC had to write off its investment in the JV as the project is no longer viable due to delay in investment sanction and high projected tariff. Also, as per the recent LPS rules, NHPC recognised fair value loss of Rs 860mn on receivables due from J&K. Total dues from J&K is Rs 12bn, to be received in instalments of Rs 500mn per month over the next 24 months. This, we believe, is a positive since it had been pending for long. NHPC also utilised MAT credit of Rs 1,115.5mn during the quarter. Reported PAT at Rs 10.5bn was up 15.1% YoY, supported by 6.6% YoY increase in 'other income' at Rs 2.2bn. However, adjusting for the one-time items, PAT increased by 20% YoY to Rs11bn. Consolidated reported PAT increased by 7.2% YoY to Rs 10.5bn, while adjusted PAT at Rs11.4bn was up 16.5% YoY."
NHPC to monetise its operational assets starting with Uri-I
As part of funding its capex for FY23, NHPC will monetise its future cashflows (consisting of RoE and capacity-based incentives). Uri-I (480MW) will be the first HEP to be monetised for 10/15 years, and targeted to be completed within FY23. The plant has a normative PAF of 85% with regulated equity of Rs 11bn, and earns an annual RoE of Rs2.1bn.
Valuations remain attractive
NHPC's reported standalone PAT for Q1FY23 was up 15.1% YoY to Rs10.5bn. However, adjusted for one-offs, PAT was up 20% YoY to Rs11bn.
Major factors impacting the numbers were: 1) Higher net generation at 8,009MU (up 11.3% YoY), 2) decline in employee cost by 3.2% YoY to Rs 3.1bn, and 3) 6.6% YoY higher 'other income' at Rs2.2bn. Further, there were a few one-time items impacting profitability for the quarter: 1) impairment provision of Rs 1.1bn for Loktak Downstream project, 2) fair value loss of Rs 860mn for receivables from J&K, and 3) MAT credit utilisation of Rs 1.1bn.
"NHPC has announced it will be monetising a few of its operational hydro assets starting with Uri-I in FY23. Over FY22-FY25, we believe apart from the under-construction hydro projects, NHPC's RE initiatives will also be a major value-creator," the brokerage has said.
"We maintain our BUY rating on the stock with a DCF-based target price of Rs46. On FY24E basis, the stock is trading at 8.3x P/E, 0.9x P/B and 5.7% dividend yield. Key risks: 1) delay in project commissioning, 2) disallowance of project capex leading to lower profit, 3) any adverse regulatory changes by CERC lowering regulated RoE in 2024-29 regulations," the brokerage has said.
NHPC Ltd is a Miniratna Category-I Enterprise of the Government of India. NHPC Limited is the largest organisation for hydropower development in India, with capabilities to undertake all the activities from conceptualization to commissioning in relation to setting up of hydro projects. NHPC Limited has also diversified in the field of Solar & Wind power.
The company is a hydroelectric power generating company dedicated to the planning development and implementation of an integrated and efficient network of hydroelectric projects in India.
NHPC Limited presently has an installation base of 7071.2 MW from 24 power stations including two no's projects in JV mode. Considering the impediments faced during execution of these projects such as unfavourable geological conditions, difficult law and order problems, inaccessible and remote locations, the achievement so far is commendable.
The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.