Buy NHPC, target price Rs 27: Emkay Global

Emkay Global has given a buy rating to NHPC with a 12-month target price of Rs 27. The share price moved up by 0.50 per cent from its previous close of Rs 20.05. The stock’s last traded price is Rs 20.15.

In Q4FY20, NHPC’s generation increased 11.1 per cent year on year to 3.94 billion units due to improved water availability. Revenue rose 31.1 per cent year on year to Rs 19.1 billion, driven by increased income from secondary energy (+79 per cent year on year) and higher deviation charges (+354 per cent year on year). EBITDA growth softened to 13.6 per cent year on year largely due to an increase in other expenses (+145 per cent year on year). This was offset by a fall in interest expenses (-32.1 per cent year on year) and rise in other income (+63.2 per cent year on year), which led to a 134 per cent year on yearrise in adjusted PAT to Rs 3.8 billion.

Investment Rationale

The brokerage has adjusted its earnings estimates to factor in FY20 results and capex guidance provided by the company. NHPC has guided for the full commissioning of Parbati II project by Q4FY22, which will enhance the regulated equity to Rs 158.9 billion in Q1FY23 against Rs 128.9 billion in FY20. Construction works at the Subansiri site is progressing well and the brokerage expects Subansiri project to achieve CoD in FY25, which would scale regulated equity to Rs 220 billion.

Emkay Global has marginally lowered its SoTP to Rs 27 from Rs 28 earlier and retains a buy rating as the stock is attractively valued at 0.6 times its FY22 P/BV.

Key risk is any further delay in the execution of key projects.



Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2170.41 crore, up .51 per cent from last quarter sales of Rs 2159.29 crore and up 0.56 per cent from last year's same quarter sales of Rs 2158.41 crore. The company reported net profit after tax of Rs 238.04 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 70.95 per cent stake in the company as of March 31, 2020, while FIIs held 4.68 per cent, DIIs 14.15 per cent and retail investors 10.21 per cent.