NHPC’s regulated equity growth – key driver of earnings – will be muted over the next few years as no new projects are being commissioned by the company.
Q2FY20 standalone PAT increased ~10% y-o-y to rs 13.4 bn (v/s est. Rs 12.4 bn) on the back of resumed income recognition for its Subansiri project (since Q1FY20).
Generation declined 5% y-o-y on lower water availability, shutdown at Chamera and R&M activities at Baira Siul. Revenue rose 4% y-o-y to Rs 26.1 bn on recognition of pay revision. Other income was up 6% y-o-y to Rs 5 bn (v/s est. Rs 4.2 bn). For 1HFY20, NHPC’s PAT was up 14% y-o-y to Rs 22.2 bn.
Construction on NHPC’s Lower Subansiri (2,000MW) project has restarted from Oct’19. Contracts for construction of the power house though are yet to be awarded. NHPC expects the project to be completed by Q2FY24. Parbati-II project (800 MW) continues to face geological challenges. The company expects the project to be commissioned in FY22 (unchanged). The final capital cost approval for the five projects is expected over the next few months. This, we estimate would boost revenues by~Rs 2-3 bn per annum. Capex stood at Rs 16 bn for the quarter. Full-year guidance is at Rs 38 bn (unchanged).
Earnings growth muted, capex run-rate increasing; Maintain Neutral
The recommencement of work at Lower Subansiri is a major positive. In the past, however, agitation by locals had impacted construction activities. Moreover, commissioning of the project is still some time away (FY24 according to management) and we await progress on the same. The capex run-rate, on the other hand, is expected to increase as the company is investing in/exploring new projects. This should reduce FCF and drag RoEs in the near term.
NHPC’s regulated equity growth—key driver of earnings—will be muted over the next few years as no new projects are being commissioned by the company. We maintain Neutral with DCF-based target price of Rs 25/share.