MOSL: NHPC (INITIATING COVERAGE)-Come on in, the water’s fine-Valuations attractive at 1x BV and 6% dividend yield-initiate with Buy
​NHPC (INITIATING COVERAGE): Come on in, the water’s fine; Valuations attractive at 1x BV and 6% dividend yield; initiate with Buy
(NHPC IN, Mkt Cap USD4.7b, CMP INR30, TP INR37, 23% Upside, Buy)
- NHPC is India’s largest hydro power generator, with a 15% share. The company has an installed capacity of 6.6GW, with attributable equity share (AES) of 5.9GW (5.1GW at parent and 51% share in 1.52GW NHDC). NHPC has 3.1GW projects under construction, which are expected to raise AES in capacity by 53%. Regulated equity in its projects and operating efficiencies are the key drivers of earnings.
- Regulated equity to increase 35%, despite Subhanshiri project being on hold
- NHPC is targeting commercialization of the 330MW Kishanganga project from January 2018 and the 800MW Parbati-II project from December 2018. These two projects will increase AES in capacity by 19% and attributing regulated equity (ARE) by 35%. The 2,000MW Subhanshiri project remains on hold for now.
- Under-recoveries to decline on natural attrition and approval of five tariff orders
- O&M under recoveries have peaked, in our view. Wage bill growth will be muted due to high natural attrition, while existing manpower can manage new projects. We expect approval of capex for the five projects over the next few years, which can boost recurring PAT by ~INR1.5b.
NHPC Limited is engaged in electricity generation. The Company is engaged in electric power generation by hydroelectric power plants. The Company is also engaged in contracts, project management and consultancy works. Its power stations include Bairasiul, Salal, Chamera-I, Tanakpur, Dhauliganga, Rangit and Loktak. Its focuses on Teesta Low Dam-IV Hydroelectric Project (160 megawatt), West Bengal; Kishanganga Hydroelectric Project (330 megawatt), Jammu and Kashmir; Parbati- II Hydroelectric Project (800 megawatt), Himachal Pradesh, and Subansiri Lower Hydroelectric Project (2,000 megawatt), Assam/Arunachal Pradesh. It provides consultancy services in various fields of hydropower, including river basin studies, survey works, design and engineering, geological studies, geotechnical studies, hydraulic transient studies, hydrological studies, contract management, construction management, equipment planning, underground construction, testing, commissioning, and operation and maintenance.
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