12 November 2013
2QFY14 Results Update | Sector:
Utilities
NHPC
BSE SENSEX
20,491
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,079
NHPC IN
12,300.7
29/15
-4/-14/-26
CMP: INR18
TP: INR21
Neutral
M.Cap. (INR b) / (USD b) 225.1/3.5
Financials & Valuation (INR b)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Adj.EPS
(INR)
Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2013 2014E 2015E
64.0
41.8
23.6
1.7
-5.9
25
7.0
8.5
10.7
0.7
64.3
41.3
26.5
2.1
25.4
27
7.8
8.0
8.5
0.7
70.5
45.7
29.5
2.4
11.5
28
8.6
8.7
7.6
0.6
Lower generation impacts incentives:
NHPC reported PAT of INR7.1b for 2QFY14,
18% below our estimate, but adjusted PAT was INR7.7b. Reported PAT includes
INR671m (for last 5-6 years) booked in other operating expenses on account of
difference in energy cost charged by the Jammu & Kashmir government for
transfer of power from the Salal project to the Dulhasti project, as it considered
this as loss of state revenue. Adjusted PAT was 10% below our estimate, as lower
generation impacted incentives.
Generation dip due to lower availability:
NHPC’s generation declined 12% due to
zero contribution from Dhauliganga and overall lower availability. We estimate
capacity addition at 937MW in FY14 (297MW already commissioned) and 164MW
in FY15. We have been seeing consistent delays in CoDs of projects under
construction. Also, growth option beyond FY15 (for 12
th
Plan, ending FY17) is only
the Kishan Ganga (330MW) project, which is also expected in 4QFY17, meaning no
driver to earnings growth beyond FY15. Subhanshri Lower (~INR60b already spent)
and Parbati Lower II (800MW) are now delayed by 7-9 years.
Cutting estimates:
We reduce our estimates by 1.4%/3. 4% for FY14/15. We
estimate PAT at INR26.5b (up 25%) for FY14 and INR29.5b (up 12%) for FY15. The
stock trades at 7.6x FY15E consolidated EPS and 0.6x FY15E BV.
Nalin Bhatt
(NalinBhatt@MotilalOswal.com); +91 22 3982 5429
Aditya Bahety
(Aditya.Bahety@MotilalOswal.com); +91 22 3982 5417
Investors are advised to refer through disclosures made at the end of the Research Report.

NHPC
2QFY14 (Standalone) below estimate led by lower generation, other
operating income
During 2QFY14, NHPC reported revenue at INR16.5b (our estimate INR18.4b),
EBITDA at INR10.2b (our estimate INR12.7b) and reported PAT at INR7.1b (our
estimate INR8.6b).
Revenue was 11% below our expectation due to lower than estimated
generation at 6.7BU v/s our estimate of 7.3BUs. EBITDA was thus 20% lower
than our estimate. Depreciation stood at INR2.8b, 7% above our estimate and
interest cost stood at INR1.2b, 9% above our estimate. However, it was largely
offset by higher other income at INR3b, 4% above our estimate.
Resulting in PBT of INR9.2b, 23% below our estimate. Tax/PBT ratio during the
quarter stood at 22.8% v/s our expectation of 27.5% leading to the reported PAT
of INR7.1b, 18% below our estimate.
Reported other expenditure went up QoQ to INR4.2b in 2QFY14, vs INR3.2b in
1QFY14. The increase was on account of differential in energy cost payable to
J&K State DISCOMs for power supply from Salal project to Dulhasti project. This
was owing to the contention that power so internally consumed by NHPC’s
power projects represents loss of revenues. NHPC has thus booked INR671mn in
other expenditure owing to such one-time provision, pertaining to ~ last 5-6
years. Adjusting for same PAT stood at INR7.7b, 10% below our estimate.
As on 2QFY14, NHPC outstanding debtors stood at INR24.8b (v/s INR28b in
1QFY14). We await clarity on receivables from J&K.
Generation down 12% YoY…as also incentives
During 2QFY14, the generation for NHPC (standalone) stood at 6.7BUs, down
12% YoY as the generation in Dhauliganga was completely impacted due to
floods, while it was impacted for other station due to lower availability. Overall
generation growth is expected to remain muted in FY14 due to lower
contribution from Dhauliganga and most of the projects are expected to
commission in 2H were hydro generation is lower.
The lower availability could a cause of concern for NHPC despite good
monsoons. It could further impact the generation growth in the next 2 quarters.
NHPC’s PAF based incentive declined to INR920m v/s INR958m YoY, Secondary
energy charges also declined to INR260m from INR415m YoY due to substantial
decline in the generation. UI chares also declined to INR110m v/s INR239m on
yearly basis.
12 November 2013
2

NHPC
Generation down by 12%
Quarterly Generation (BUs)
2.4 4.3
3.3
9.3
15.4
14.8 11.0
-2.6
1.0
-9.2
-17.3
-2.2
YoY Generation Gr (%)
10.0
4.0 3.9
-12.0
-2.7 -2.1
2.7 2.4 5.5 6.5 2.7 2.3 5.7 7.1 3.1 2.6 6.3 6.9 3.1 2.4 6.1 7.6 2.6 2.5 6.4 6.7
Source: MOSL, Company
FY14 target at 937MW, Subhanshri Lower & Parbati II projects sizably
delayed
NHPC targets to commission 937MW in FY14 including 4 projects TLDP III
132MW (already commissioned), Nimbo Bazgo 45MW (Commissioned on 15
th
Oct), Parbati III 520MW and Uri II 240MW ( 2 units commissioned on 30
th
Sep).
NHPC targets to commission remaining 2 units of Uri II (120MW) and Parbati III
(520MW) in 2HFY14. Even if these projects get commissioned in FY14, the
benefit of the same would be available only in FY15E.
Subhanshri lower (2GW) work is at standstill since December-11 due to agitation
from various group and the CoD date for project is now targeted in Nov-17. The
main concern is safety of dam for which a committee is formed of related
concerned parties (including NHPC). They have submitted the report to the
panel, which recommended some measures to be followed and recommended
that dam is safe. Currently, NHPC is communicating with the Assam government
and trying to negotiate with the agitators.
In Parbati II project, the contract for Tunnel Boring Machine (TBM) is recently
awarded. The revised guidance on project CoD is Nov-18.
Valuations and view
We reduce our estimate slightly by ~1.4%/3. 4% for FY14/15. We expect FY14
profit at INR26.5b up 25% YoY and FY15 profit at INR29.5b up 12% YoY.
Stock trades at 7.6x FY15 consol EPS and 0.6x FY15E book. Maintain Neutral with
target price of INR21/sh.
12 November 2013
3

NHPC
NHPC: an investment profile
Company background
Recent developments
NHPC, GOI enterprise is a hydro power generator in
India with regulated business model and installed
capacity of 6GW. Company has project pipeline with
4.1GW of projects under construction stage,
11.2GW of projects under clearance and survey
stage.
Uri 2 (2 units) commissioned in 2QFY14.
Nimbo Bazo commissioned on October-15.
NHPC has gone for buyback of shares which would
help in improving the valuations
Valuation and view
Key investment arguments
Given delays in commissioning of installed capacity,
NHPC will see bunching up capacity commissioning
over FY13-15. NHPC expect commissioning of
937MW in FY14, 164MW in FY15.
Recently the RoE for pondage based project is
increased from 1% to 16.5% from earlier 15.5%.
We reduce our estimate slightly by ~1.4%/3.4% for
FY14/15. We expect FY14 profit at INR26.5b up
25% YoY and FY15 profit at INR29.5b up 12% YoY.
Stock trades at 7.6x FY15 consol EPS and 0.6x
FY15E book. Maintain
Neutral
with target price of
INR21.
Sector view
Key investment risks
Further
meaningful
delays
in
capacity
commissioning
Large projects like Subhanshri lower and Parbati II
are inordinately delayed.
R&R delays can impact land acquisition process
Construction of a hydro project carries significant
geological risks. Also, the terrain is difficult.
Power sector has begun to witness several
initiatives by authorities to address concerns on
SEBs, fuel supply pacts and PPAs. It would however
take a while before clarity on several issues
emerges. In this environment, we continue to
prefer CPSUs which are relatively better positioned
on these fronts
.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
2.1
2.4
Consensus
Forecast
2.0
2.2
Variation
(%)
7.7
6.6
Target price and recommendation
Current
Price (INR)
18
Target
Price (INR)
21
Upside
(%)
16.7
Reco.
Neutral
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
June-13
86.4
3.3
2.6
7.8
Mar-12
86.4
3.4
2.4
7.8
June-12
86.4
3.3
1.5
8.9
Stock performance (1-year)
12 November 2013
4

NHPC
Financials and valuation
12 November 2013
5

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NHPC
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NHPC LTD
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