National Hydroelectricity Power Corporation (NHPC) is a hydroelectric power generating company dedicated to the planning, development and implementation of an integrated and efficient network of hydroelectric projects in India.
The company carries out all activities related to the development of hydroelectric projects, from the concept stage to the commissioning stage. It has developed and constructed 13 hydroelectric power stations with a total installed capacity of 5,175 megawatt (MW).
Currently, the company’s total generating capacity stands at 5,134.2MW, which takes into account a downgrade of the capacity ratings of the Loktak and Tanakpur power stations by the Central Electricity Authority (CEA).
This total installed and the generating capacity include two power stations with a combined capacity of 1,520MW, constructed and operated through NHPC’s subsidiary, Narmada Hydroelectric Development Corporation (NHDC).
The company’s power stations and hydroelectric projects are located predominantly in the north and north east of India, in the states of Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Arunachal Pradesh, Assam, Manipur, Sikkim and West Bengal.
NHPC is presently engaged in the construction of 11 additional hydroelectric projects, whichare expected to increase the company’s total installed capacity by 4,622MW.
Furthermore, it is awaiting the government’s sanction for five more projects with a total anticipated capacity of 4,565MW in addition to certain joint venture projects with a total anticipated capacity of 2,166MW.
In terms of valuations, the issue is priced between 1.7x-2x post-money book value that is at a discount to the listed utilities in the space (for isntance, JP Hydro trades at 3.7x FY2009 book value).
This discount is justified on account of the lower return on equity (RoE) of NHPC and the higher risk of delays in the execution of its projects.
Importantly, NHPC’s lower RoE is attributable to the higher capital work in progress, which results in lower component of equity which the company earns its returns on. We feel NHPC offers long-term value to the investors.
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