NHPC Ltd continues to be a wet blanket even in the dark world of power stocks. The stock has lost 36.5% since its listing in September 2009.

In comparison, the power index of the Bombay Stock Exchange has shed only 10.4%. The stock has languished below its issue price after the first week of listing, a far cry to the universal thumbs up given to its initial public offering (IPO) by brokerages. The only concern expressed by some, which these pages, too, had pointed out at that time, were project execution delays in the 12 months prior to the IPO. Those fears have turned out to be well-founded.

In its IPO prospectus, NHPC had identified seven projects totalling 3,240 megawatts (MW), the last of which was scheduled to be completed by December 2012. All have been delayed due to reasons ranging from law and order problems to environmental concerns. On Wednesday, a PTI report quoted a power ministry official as saying that the Parbati II plant will be delayed further due to a legal battle with the contractor.

Now, consider its financials. For the nine months ended December, net sales fell 14% from a year ago to Rs2,969 crore. Net profit declined 11% to Rs1,528 crore. However, that is strictly not an apple-to-apple comparison due to several one-time changes. Adjusting for these, NHPC’s sales have increased by 9% and adjusted profits by 31%, reckons IFCI Financial Services Ltd.

The trigger for the stock remains capacity additions. The current price implies the market is ignoring any planned capacity additions, Girish Nair wrote in an 11 March note from BNP Paribas Securities (Asia) Ltd, upgrading NHPC to a buy. “Hence, completion of any hydropower plant will be a catalyst for the stock," he added, assuming NHPC will add 1,400MW in fiscal 2012.

At Thursday’s closing, the stock was trading at 1.07 times its estimated book value for fiscal 2012. That certainly looks attractive. But then, NHPC’s valuation has always looked attractive against other generators. Even for its IPO, the upper end of the band was some 1.66 times its fiscal 2010 book value when peers were trading at 2.4-3 times.

Hydro projects are cash cows once they start operations since there is no fuel risk. But finding qualified people to replace those who have left for the private sector and a shortage of civil contractors are not problems that NHPC can solve overnight. Investors will now only believe what they see on the ground.

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