Company is likely to revert to growth path; earnings down 1/7% for FY19/20e even as TP of Rs 30 is retained.
Weak generation leading to lower incentive income offset by a late payment surcharge distorted Q4FY18 earnings for NHPC. On a full-year basis, a 72% y-o-y drop in generation at NHDC, and loss of earnings due to temporary shutdown of plants in Teesta saw a 14% y-o-y drop in PAT. Commercialisation of Kishanganga in May, 2018 as well as normal generation at NHDC will drive earnings back to a path of growth. Maintain Add with TP of Rs 30/share.
Lower generation and incentives lead to drop in revenue, late payment surcharge boosts PAT
NHPC reported net sales of Rs 11.4 bn, Ebitda of Rs 3.6 bn and net income of Rs 1.9 bn against our estimates of Rs 12.1 bn, Rs 5.2 bn and Rs 1.2 bn respectively. Lower-than-estimated revenues were on account of a 35% y-o-y drop in generation and consequently lower incentive income — Rs 1 bn in Q4FY18 compared to Rs 1.6 bn in Q4FY17. Ebitda growth was due to higher provisions for wage employment in Q4FY17 compared to Rs 858 mn in Q4FY18. We note that the higher wage provision did not have an impact at PAT level owing to corresponding revenue of a near-equivalent amount recognised under rate regulated income. Other income rose to Rs 2.9 bn on account of recognition of late payment surcharge of Rs 1.5 bn.
Standalone earnings performance for FY2018 was subdued on account of (i) shutdown of TLPD-III and TLPD-IV power stations due to Gorkha agitation and (ii) reversal of prior period sales of Rs 2.7 bn for Parbati-III in Q2FY18 that was offset by Rs 3.8 bn of surcharge recognised in other income for late payments. Consolidated earnings saw a 14% y-o-y decline in PAT to Rs 25 bn on account of a drop in profits at NHDC attributable to a sharp 72% y-o-y drop in generation to 1,325 MU in FY2018.
Kishanganga starts operations
Kishanganga plant (3×110 MW) started commercial operation in May 2018, earlier than the previously expected time of two years. Parbati II (800 MW) is expected to commission over the next two years while Subansiri (2 GW) continues to be stalled. The committee (recommended by NGT) was due to have its second meeting on February 15, 2018 which was deferred on grounds of a petition filed in NGT by an NGO.
Maintain ADD with TP of Rs 30
We remain positive on NHPC owing to (i) its rich dividend yield with a dividend of Rs 1.40/share (5% yield), (ii) growth from commissioning of 800 MW of Parbati II and (iii) potential resolution of the embargo on the Subansiri project. We marginally revised earnings for the company downwards by 1/7% for FY2019/20 though maintain target price of Rs 30/share.
Resolution of Subansiri
The stay on construction work at Subansiri remains, even as NHPC was hinging its hopes on the NGT decision that came in October, 2017. We note that NHPC has already incurred over Rs 99.8 bn till March, 2018 towards project cost of Subansiri, with a revised project cost of over Rs 195 bn.