NHPC Ltd’s stock gained 4.64% on Friday after it announced its September quarter results. Net profit grew 40% from a year ago to Rs 966 crore. Sales grew by 47.5% to Rs 1,830.6 crore. The second quarter is seasonally a good one for hydropower generators due to the monsoons, and NHPC’s numbers managed to beat Street estimates.
But these stellar numbers were boosted by one-offs such as a reversal of a cess paid by the company to Jammu and Kashmir and a smaller depreciation charge due to a changed accounting policy plus a tariff hike. The notes to the earnings statement say that the company has recognized some Rs 463 crore in sales (unbilled as yet) during the quarter, which had been previously paid as a cess to Jammu and Kashmir.
However, the company’s power generation during the September quarter declined by 1.35% year-on-year. That is a bit surprising considering the above average rainfall this year. That follows a 10.5% spike in the June quarter power generation. It is unlikely to have been a demand-side problem since NHPC is easily among the cheapest power producers in the country.
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The only way to boost power generation is to add capacity, which has been NHPC’s bugbear for quite some time now. ICICI Direct said in a recent note that the management has guided for 690 megawatts (MW) capacity addition this fiscal year, which is a big comedown from the 1,080MW expected earlier. If one goes strictly by the information on NHPC’s website, nothing has materialized yet this fiscal.
Still, with thermal power producers facing fuel supply problems, investors have turned to NHPC. At least, they are not dumping the stock as quickly; despite falling 2% since the beginning of the fiscal, in relative terms, it has fared better than peers, and indeed, the broader market. Sometimes there is no alternative and one ends up choosing the lesser evil.
The fact that NHPC is trading at 1.08 times its estimated book value for fiscal 2012, which makes it a bargain among companies with an assured return-on-equity model, also helps.