NHPC Ltd (Rs.97.05): Buy

Book Value: Rs.37.61

P/E: Rs.26.97

Highlight: 25 power stations across 13 states. It has signed a MoU on 3 Jan 2024 with GPCL for proposed investment of Rs.4000 Cr in Kuppa Pumped Storage Project (750 MW), Chhota Udaipur, Gujarat.

Company Profile: NHPC is the largest hydropower company in India and holds the status of a Mini-Ratna Category-I Public Sector Undertaking (PSU).  Photo: Business Standard.

The company is involved in every phase of hydropower project development, from initial planning to final commissioning. NHPC has a strong track record, in-house engineering expertise, and consistently strong operational performance. 

With the government's goal to reach 500 GW of installed electricity capacity from non-fossil sources by 2030, hydropower is becoming increasingly important to provide grid stability, especially given the intermittent nature of solar and wind power. Hydropower can quickly adjust output, making it valuable for managing peak demand and maintaining grid frequency. 

Currently, only 46 GW of India's estimated 145 GW hydropower potential has been utilized, indicating significant untapped potential.

NHPC stands at a crucial juncture in the power sector, actively developing hydro and renewable energy projects with a total capacity exceeding 10,000 MW, including the ambitious 2,880 MW Dibang Multipurpose Project. Major projects such as the 2,000 MW Subansiri Lower Hydroelectric Project and the 800 MW Parbati-II Hydroelectric Project are nearing completion.

Recently, the company reached a significant milestone in the Subansiri Lower Hydroelectric Project with the successful installation of Spillway Radial Gates Nos. 7, 8, and 9, along with the sealing arrangement on April 25, 2024. Additionally, diverting the Dirki Nalla at the Dibang Multipurpose Project was a key step forward, ensuring all-weather road access to the site.

Furthermore, it is heartening to note that NHPC’s achievements were recognized on the international stage at the 26th World Energy Congress (WEC) in Rotterdam, Netherlands. NHPC signed a Memorandum of Understanding (MoU) with Ocean Sun, a Norwegian company specializing in floating solar technology.

Besides, under the MNRE-REIA Scheme, NHPC has signed Power Purchase Agreements (PPAs) and Power Sale Agreements (PSAs) for 3,000 MW of solar power. As the Renewable Energy Implementing Agency, NHPC will earn trading margins through this initiative.

In the last financial year, the total cumulative generation across all power stations reached 21,779 Million Units (MUs), with an overall annual Plant Availability Factor (PAF) of 77.60% for the financial year 2023-24. Six power stations met their annual design energy targets, while ten power stations achieved their respective Normative PAF. 

NHPC has 6,434 MW of hydropower projects under construction. With the anticipated completion of the 2,000 MW Subansiri Lower and 800 MW Parbati II projects by the end of FY24E, NHPC’s capacity is expected to increase by 40%, with the impact visible in FY25. 

The signing of multiple Power Purchase Agreements (PPAs) and Memoranda of Understanding (MoUs) for both hydro and renewable power projects, along with a regulated business model for hydropower, ensures strong earnings growth potential. Additionally, 1,105 MW of renewable energy projects are under construction, with more projects in the pipeline.

Earlier in March 2021, the company had informed that it has completed the formalities for the takeover of Rangit Stage-IV Hydro Electric Project (120 MW) by remitting Rs.165 crore to the account of JPCL for distribution to the creditors according to the approved resolution plan. JPCL is now a wholly-owned subsidiary of NHPC Ltd.

Shareholding: FII/FPI have increased holdings from 6.80% to 8.96% in Jun 2024 qtr. Number of FII/FPI investors increased from 319 to 569 in June 2024 quarter. Number of MF schemes increased from 27 to 28 in June 2024 quarter. Institutional Investors have increased holdings from 19.39% to 20.51% in June 2024 quarter. Life insurance corporation of India (LIC) has 3.84% stake in NHPC with 385,595,015 shares of the PSU for the June 2024 quarter (LIC stake was 3.24% stake in March 2024 quarter), according to Trendlyne.

​Q. Can the share of NHPC Ltd cross Rs.500 in the next 3 - 4 years ?

Ans. We know that NHPC Ltd (Rs.97.05, P/E: 24.70), serves both the Hydroelectric and Solar Energy Sectors.  But unfortunately the share price has not risen to the levels many renewable energy players from the sector has shown in the last  couple of years, viz. Waaree Renewables Technologies Limited (Rs.1432.45, TTM P/E: 90.26, Book Value: Rs.22.30), a vertically integrated new energy company that generates power from renewable sources, basically from solar space. Or Websol Energy Systems Ltd (Rs.955.45, FV: Rs.10, Book Value: Rs.25.52)

If we go by this logic of P/E or Book Value analysis then, the rough value of NHPC Ltd should be around Rs.275/300, after suitable discounting and post implementation of Capex plan, the share should cross Rs.500.

Conclusion: However, though taking a view on the share price of any company only through P/E analysis is not a correct method, even then I feel the share price of NHPC Ltd is highly undervalued, especially considering the vastness of its present and upcoming projects and its geographical reach.