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ICICI Securities
NHPC (Buy)
Target: ₹34
CMP: ₹22.20
CMPAl though the next tariff
guideline revision of CERC is in 2024-29, we do not expect any change to the
existing RoE structure due to hydro projects’ long gestation period and their strategic
importance for the nation, as well as grid stability and peaking requirements.
NHPC Ltd, the largest hydroelectric power generation company in India, has 7GW operational capacity, split 98 per cent/2 per cent in favour of hydro/renewables, making it the largest ‘completely green’ power generating company in India. Its regulated business model and capacity addition outlook (5 under-construction projects) provide earnings certainty, while ever improving operational performance resulting in higher incentives will provide the extra fillip to earnings.
As a result, PAT is estimated to increase by 51 per cent over FY20-FY24 (11 per cent CAGR).
Although the next tariff guideline revision of CERC is in 2024-29, we do not expect any change in the existing RoE structure due to hydro projects’ long gestation period and their strategic importance for the nation, as well as grid stability and peaking requirements.
NHPC follows the GoI mandated dividend policy (higher of 5 per cent of net worth or 30 per cent of PAT), which translates to over ₹1.5/share. At CMP of ₹ 22/share, the stock is trading at 6.2 P/E and 0.6 P/B of FY23 basis. Its dividend yield is over 7 per cent.
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