NHPC Ltd’s stock has outperformed the broader market this fiscal year. Perhaps the fact that the company still trades at an underwhelming 1.2 times of its fiscal 2012 (FY12) book value has boosted investor sentiment a bit. With an assured return on equity, state-owned utilities are also a defensive bet in troubled times. But nothing has really changed fundamentally.
The company’s main problem of adding capacity at an accelerated pace still remains. In fact, it has lowered its target for this fiscal to 723 megawatts (MW) from an earlier announced 1,080MW. That comes after a dismal FY11, when it added just 120MW. Forget the earlier targeted capacity addition of 5,300MW in the five years ending 2012, the company will not even meet the revised goal of 2,522MW. Its problems over environmental risks and land acquisition are well documented, but for now things are moving at a snail’s pace.
On the positive side though, June quarter results beat Street expectations. Power generation increased 10.5% due to a power plant that was not operational during the year-ago period. Sales rose 40% to Rs1,431 crore compared with a year ago. Part of this increase was because of Rs275.3 crore worth of revenue accumulated from tariff changes. Adjusted for this one-time gain, revenue grew at a more sedate 13%. Expenditure rose because of a provision of Rs200 crore as water cess for a Jammu and Kashmir project. But that was more than compensated for by a 35% rise in other income and savings on interest cost. Thus, net profit rose 47% from a year ago.
However, the delays in commissioning capacity means that this performance may not be repeated in the coming quarters. Already, brokerages are shaving 5-8% off FY12 earnings estimates.
NHPC plans to raise Rs2,000 crore this year for capacity addition, but only results on the ground will boost the stock back to the Rs36 levels—about 30% more than the current price—last seen at its new share sale two years ago.
Graphic by Ahmed Raza Khan/Mint
We welcome your comments at email@example.com