This Power Sector Miniratna Stock Gets Buy Call For Strong 28% Gains, Recommended By ICICI Securities

ICICI Securities has recently published a report on NHPC Ltd. has recommended investors buy the stock of the company for the target price of Rs 46 apiece. NHPC is a mid-cap power sector Miniratna company having a market cap of Rs 36,513.70 crore.

Stock Outlook

On NSE, the Current Market Price (CMP) of NHPC is Rs 36.50 apiece. The 52-week low level of the stock is Rs 26.55 apiece recorded on 30 August 2021, and the 52-week high level is Rs 37.60 apiece recorded on 22 April 2022, respectively. The stock is likely to gain 28% in 12 months, considering the estimated target price and the current market price of the stock.

Returns on investment

Over the week, the stock has given 7.65% positive return and in the past 1 month, it has given 7.17% positive return, respectively. Over the past 1 year, the stock gave a positive return of 37.08%. Over the past 3 and 5 years, the stock surged and gave 57.42% and 25.99%, respectively.

Subansiri project’s pace of execution is good

Subansiri Lower HEP is a 2,000MW (8x 250MW) capacity, reservoir-based project, with design energy of 7,422MU, situated on Subansiri river (a tributary of Brahmaputra) at the border of Arunachal Pradesh and Assam. Revised project cost is Rs193bn. Cumulative expenditure incurred on the project till date is ~Rs161.8bn. Currently, work is going on in full swing despite heavy rainfall in the region. Testing of all equipment is over. All eight intake service gates have been tested and lowered, and erection of radial gate has started. Transmission system for evacuation of power from the project is expected to complete by Mar'23. NHPC targets commissioning of two units by Mar'23 and the remaining six by Aug'23. Thus, FY25 will be the first full year of operations, while FY24 will have part operations (50-60%). The project is estimated to add Rs12bn to NHPC's earnings (RoE), and this can further increase by an estimated Rs800m-1bn due to secondary energy-based incentives, since water flow in the river (Subansiri) is extremely good.

Parbati-II project slightly delayed

The brokerage said, "We expect the balance two units of 800MW ParbatiII project to be commissioned by Q3FY24 as geological constraints are delaying the completion of head race tunnel. However, NHPC is working to expedite the completion."

Signs various MoUs

Over the past two months, NHPC and its subsidiaries have signed several MoUs/agreements for development of both hydro and RE projects. These include:

1) MoU between NHPC REL and Govt. of Rajasthan for development of 10GW of UMREPP in Rajasthan.

2) implementation agreement with Govt. of Himachal Pradesh for 500MW Dugar HEP.

3) MoU with Investment Board Nepal, Govt. of Nepal for development of two HPPs - West Seti (750MW) and Seti River 6 project (450MW) in Nepal.

Other updates includes

1) Excavation of top and bottom horizontal pressure shaft no. 2 of Kiru HEP is complete,

2) pre-construction activities at Sawalkot HEP have restarted.

3) erection of draft tube of Pakal Dul HEP has started.

4) lowering of draft tube liner segments of unit 3 of Rangit-IV HEP has started.

5) NHDC has awarded 88MW floating solar project contract to Tata Power Solar (to be completed in 13 months).

Maintaining good execution pace despite challenges

Significant progress has been made by NHPC's Subansiri Lower Hydroelectric Project, despite challenges. Till date, 84% of the estimated capex has been incurred (Rs161.8bn). While the first two units are expected to be commissioned by Mar'23, the remaining six units will go on-stream over FY24E. The associated transmission systems are also likely to be commissioned by Mar'23. Thus, FY25 will be the first full year of operations, while FY24 will have part operations (50-60%). For Parbati-II, we expect the balance two units to be commissioned by Q3FY24 as geological constraints are delaying the completion of head race tunnel excavation. NHPC has signed several MoUs/agreements for developing RE projects as well as for new hydro projects, and has made substantial progress in several other under-construction HEPs. NHPC aims to become a 50GW company over the next 15 years, with 6GW HEPs under construction, and in-pipeline capacities of 26GW HEPs, 8GW PSPs and >12GW RE.

Valuations

ICICI Securities said, "We maintain our BUY rating on the stock with DCF-based target price of Rs46, which is trading at 8.7x P/E and 1x P/B on FY24E basis. Its dividend yield is 5.4%."

Disclaimer

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 making any investment decision.