BackNHPC fundamentals poor, but not bad enough to warrant stock plunge
The fall in the stock was due to some margin calls being triggered, which had a domino effect, say dealers
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NHPC Ltd’s stock fell as much as 25.8% on Monday before recovering marginally. This followed a 10.5% decline on Friday and prompted the management to issue a clarification. “As far as the fundamentals of the company, there is no change which affects the major price movement," the company said in a stock exchange filing. “In our opinion, there is no issue in the Finance Bill, which has any adverse effect on (the) hydro sector."
Dealers said the fall in the stock was due to some margin calls being triggered, which had a domino effect. While the budget may not have had an impact, the company’s fundamentals remain weak, though that doesn’t warrant such a steep decline in its stock price.
After listing at ₹ 36 a share in 2009, NHPC exceeded that price only once—on 6 January 2010. The main problem dogging the company has been a delay in executing projects. It added no capacity at all in FY10, just 120 megawatts (MW) in FY11 and none at all in FY12. If one went by the projections given in its red herring prospectus, NHPC should have added 3,941MW of capacity by now.
So far this fiscal year, the company has added 275MW of capacity. An investor presentation on its website said it expects to add another 417MW of capacity in this fiscal year and another 680 MW in the next.
However, after that, expect another lull in commissioning for 18 months before capacity additions start in FY17. NHPC has so far spent ₹ 19,000 crore on these projects which are at varying levels of completion. Emkay Global Financial Services Ltd said in a report that, “20% book (is) invested in projects that are stuck or facing problems." In other words, it will take a long time for these projects to be added to NHPC’s gross block and start earning.
The recent capacity additions have also meant that NHPC has reported a rise in generation. But then it has also been facing other problems. Capital costs for the company have increased and the tariff for new projects such as Chutak in Jammu and Kashmir is estimated at ₹ 8 per unit, far higher than the average electricity rates around the country.
NHPC is also seeing receivables piling up, another threat to earnings. According to Emkay, total receivables at the end of December 2012 stand at ₹ 1,999 crore, about one-third of its FY12 sales. Of this, receivables which are more than 60 days old constitute ₹ 1,258 crore.
While these limit the upside for the stock, note that NHPC now trades at 0.77 times estimated book value for FY14, much below the consensus 1.1 times call by brokerages.
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