NHPC will likely add 1.7GW capacity in the XIth Plan vs target of 5.4GW. Barring 3.7GW spillover
capacity to be commissioned in the XIIth Plan, NHPC has signed no new PPAs in the last several
years, which raises concerns for future growth. Though valuations provide partial comfort, more
needs to be done.
Capacity addition delays will continue to haunt NHPC
In the best case scenario, NHPC is likely to add 1.7GW of generation capacity in the XIth Plan, or
31% of the original target. We expect the remaining 3.7GW from the XIth Plan to be
commissioned between FY13-16 and for it to be back-ended, with FY15-16 likely to see a 2GW
addition; further delays cannot be ruled out. We believe that delays will continue to be a recurring
feature for hydro projects, led by geological surprises, natural calamities and local protests. As
per our estimates, without any delays our core book would have been higher by Rs5/share and
target price by Rs10/share.
Is NHPC’s long-term growth at risk?
As said earlier, NHPC will add 3.7GW in the XIIth Plan, which should ideally have been
commissioned in the XIth plan. Note that NHPC has not signed PPAs for any new projects in the
last several years, despite pipeline projects of over 15GW. This is largely because most projects
are stuck at different stages of clearance from state and central bodies. Also, state governments
have been reluctant to sign PPAs with NHPC (despite all the initial work done by NHPC) as
private companies are offering a higher free share of power, for example, to the state vs NHPC.
The Ministry of Power (MoP) recently decided to allow developers of hydro projects to sign PPAs
on a cost-plus basis until December 2015, provided all the clearances are received, a PPA is
signed, financial closure is done and work has started for the project. MoP’s supplementary
conditions have put additional burden on NHPC to prove itself, otherwise its long-term growth will
be at risk.
Our Buy rating is purely on cheap valuations as the stock is trading below FY13F book
NHPC is currently trading at 0.98x FY13F P/BV, which we believe factors in most of our
concerns. Our one-year forward SOTP-based target price for NHPC is Rs26, which assigns
P/BVs of 2x to core equity and 1x for investment and cash. Our target price implies a target
multiple of 1.1x on FY13F balance sheet book value.
capacity to be commissioned in the XIIth Plan, NHPC has signed no new PPAs in the last several
years, which raises concerns for future growth. Though valuations provide partial comfort, more
needs to be done.
Capacity addition delays will continue to haunt NHPC
In the best case scenario, NHPC is likely to add 1.7GW of generation capacity in the XIth Plan, or
31% of the original target. We expect the remaining 3.7GW from the XIth Plan to be
commissioned between FY13-16 and for it to be back-ended, with FY15-16 likely to see a 2GW
addition; further delays cannot be ruled out. We believe that delays will continue to be a recurring
feature for hydro projects, led by geological surprises, natural calamities and local protests. As
per our estimates, without any delays our core book would have been higher by Rs5/share and
target price by Rs10/share.
Is NHPC’s long-term growth at risk?
As said earlier, NHPC will add 3.7GW in the XIIth Plan, which should ideally have been
commissioned in the XIth plan. Note that NHPC has not signed PPAs for any new projects in the
last several years, despite pipeline projects of over 15GW. This is largely because most projects
are stuck at different stages of clearance from state and central bodies. Also, state governments
have been reluctant to sign PPAs with NHPC (despite all the initial work done by NHPC) as
private companies are offering a higher free share of power, for example, to the state vs NHPC.
The Ministry of Power (MoP) recently decided to allow developers of hydro projects to sign PPAs
on a cost-plus basis until December 2015, provided all the clearances are received, a PPA is
signed, financial closure is done and work has started for the project. MoP’s supplementary
conditions have put additional burden on NHPC to prove itself, otherwise its long-term growth will
be at risk.
Our Buy rating is purely on cheap valuations as the stock is trading below FY13F book
NHPC is currently trading at 0.98x FY13F P/BV, which we believe factors in most of our
concerns. Our one-year forward SOTP-based target price for NHPC is Rs26, which assigns
P/BVs of 2x to core equity and 1x for investment and cash. Our target price implies a target
multiple of 1.1x on FY13F balance sheet book value.
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