For investors enthusiastic about NHPC Ltd’s low valuations and the impending rise in regulated equity due to new capacity additions that is expected to lift earnings, the December quarter results provide a reality check. The management, in its post-results commentary, indicated that commissioning of the power plants which are expected to boost its regulated equity may be delayed.

Regulated equity is the invested amount on which the firm will be allowed to earn fixed return.

The 330 megawatts (MW) Kishanganga project, which was expected to be commissioned by the beginning of this year, is delayed to the end of the current quarter. It’s feared that commercialization of the 800MW Parbati-II project will be delayed by a year. With tunnelling work still pending, Motilal Oswal research now expects the Parbati-II project to be commercialized in FY21 against FY20 earlier.

To be sure, as Emkay Global Financial Services Ltd points out, the Parbati-II project is expected to be commissioned in phases, with some units coming on stream in FY19 and the balance in FY20. But it now looks like much of the commissioning will be pushed to FY20. Given the company’s track record of inordinate delays, analysts are sceptical if the timelines will be adhered to.

Still, as one analyst points out, execution delays are the norm for hydropower projects, especially for NHPC. Indeed, it would be a positive surprise if commissioning happens on time.

Even so, delays do have consequences. In NHPC’s case, it may be two-faceted. One is the postponement of earnings. The second is underutilization of the Parbati-III plant, operating downstream. “Parbati III will attain its full utilization only after the commissioning of Parbati II unit," Emkay research said in a note.

That said, given the undemanding valuations of the stock, which is trading at less than 10 times the price-to-earnings multiple and one time FY19 book value—some brokerage firms still see value in it. While the stock has indeed paid off for patient investors, the commissioning delays sap confidence.

Also, NHPC’s problems are more deep-rooted. Several of the company’s projects are facing cost overruns. As pointed out earlier in this column, these cost overruns pushed up tariffs, making them unpalatable for customers, who are spoilt for choice nowadays. The hydropower policy, which is in the works for some time now, is expected to resolve some of the problems. Longer duration and cheaper loans, and classification of large hydropower plants as renewable projects are expected to lower costs and help improve demand for hydropower. While these proposals do offer significant relief, what is unclear is when and which of them will be approved.

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