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A0NIII 1
NHPC Limited
Analyst
kddhkd Poddr
research@acm.co.in
Tel: (022) 2858 3410
Issue Details
Face Value INR. 10
Price INR 30-INR36 per share
Issue Size 1.68 bn equity shares
Issue Amount INR50.32bn - INR60.39bn
Minimum Lot 175 shares
Minimum Amount INR. 5250 INR. 6300
Issue Opens August 07, 2009
Issue Closes August 12, 2009
Other Details
Lead Managers ENAM Securities Pvt.
Ltd,Kotak Mahindra Capital
company Ltd, SBI Capital
Markets Ltd.
Registrars Karvy Computershare Pvt Ltd.
Listing BSE & NSE
Financial Highlights (INR mn)
Particulars FY07 FY08 FY09
Total Income 25799.4 33216.3 40515.2
% Growth 9.65 28.75 21.97
Operating profit 20199.6 25042.5 25891.1
% To income 78.29 75.39 63.90
Net Profit 10490.9 12070.4 12441.5
% To income 40.66 36.34 30.71
Diluted EPS (Rs) 0.85 0.98 1.01
Aug 07, 2009
Public issue of 1.68 bn shares with a face value of INR10 at a price band of INR30-
INR 36, aggregating to INR50.32bn - INR60.39bn. The issue comprises an offer for
sale of 0.56bn shares and fresh issue of 1.1bn shares.
Background
NHPC is a hydroelectric power generating company, which is dedicated to the
planning, development, and implementation of an integrated and effcient network
of hydroelectric projects in India. NHPC is involved in all aspects of hydroelectric
projects - from conceptualizing to commissioning.
Objects Of The Issue
To part fnance the construction and development costs of projects such as
Subansiri Lower, Uri II, Chamera - III, Parbati III, Nimoo Bazgo, Chutak,
and Teesta Low Dam IV.
General corporate purposes
Valuation
We value NHPC on a P/BV basis relative to peers like JP Hydro in the hydel space
and NTPC and Tata Power, CESC and KSK Energy. While there are no comparable
peers, we believe hydel companies should be accorded discounting lower than its
thermal peers owing to the higher risks of execution and long gestation periods. We
believe NHPCs nearest comparable peer is NTPC owing to a common lineage and
large scale.
Bulk of NHPCs projects are being commissioned in FY11 and FY13. We have
estimated the addition to gross block, funding and debt repayment as per norms for
FY12 when the frst tranche of projects will be eligible for full RoE. We have also
considered that the projects will be commissioned as scheduled.
The upper price band of INR36 discounts NHPCs FY12E book value by 1.62x and
the lower price band discounts FY12E book value by 1.38x. The upper P/BV is at
a 31% discount to NTPC while the lower P/BV is at a 41% discount to NTPC. We
believe that the higher price band does not adequately factor in the risks. Thus, we
recommend SUBSCRIBE at the lower price band of INR30.
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Industry Overview
In FY09, demand for electricity exceeded supply by 11%, compared with 9.90%
in FY08. Indias peak demand defcit during FY09 was 12% or 13,124MW; it is
anticipated to be 152,746MW by 2012 with total energy requirements of 969 billion
units.
Hydropower Potential in India
According to the Hydro Power Policy 2008, India has enormous potential for
hydroelectric generation; about 84,000MW at 60% load factor, which translates into
148,700MW in terms of installed capacity, according to CEA. Moreover, 6,782MW
of installed capacity has been assessed from small, mini, and micro hydroelectric
schemes.
The estimated hydropower potential and probable installed capacities of major Indian
river systems are given below:
Basin/River Potential at 60% Load Factor Probable Installed Capacity (MW)
Indus 19988 33832
Ganga 10715 20711
Central Indian Rivers 2740 4152
West-Flowing Rivers 6149 9430
East-Flowing Rivers 9532 14511
Brahmaputra 34920 66065
Total 84044 148701
Source: RHP
As of May 31, 2009, the total installed capacity in the country was 149,392MW
and hydropower (including pumped storage schemes in the country) accounts for
36,878MW.
Share of Hydropower in Total Power Generation in India, as of May 31, 2009
Type of Station Installed Capacity (MW) Percentage Share
Hydropower 36878 24.69
Thermal 95152 63.69
Nuclear 4120 2.76
R.E.S 13242 8.86
Total 149392 100
Source: RHP
This capacity does not include small hydropower capacity of 1,168MW from
hydropower plants with an installed generating capacity up to 25MW. These small-
scale hydropower generators were classifed as Renewable Energy Sources (RES)
(along with wind energy and biomass energy) in FY09.
A capacity addition of 78,700.4MW has been proposed in the eleventh fve year plan.
Of this, capacity addition of 15,627MW is proposed from hydropower - 3,392MW
has already been commissioned and 12,235MW is under construction, as of May
31, 2009.
(MW) Hydropower Thermal Nuclear Total
Central sector 8654 24840 3380 36874
State Sector 3482 23301.4 - 26783.4
Private sector 3491 11552 - 15043
All India 15627 59693.4 3380 78700.4
Source: RHP
NHPC plans to add around 1492MW, around 9.5% of the total proposed capacity
addition.
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Company
NHPC was incorporated under the Companies Act in 1975 as a private limited
company. It became a public limited company from, 1986, and its name changed
to NHPC Limited.
NHPC is a hydroelectric power generating company, which is dedicated to the
planning, development and implementation of an integrated and effcient network of
hydroelectric projects in India. The company executes all aspects of the development
of hydroelectric projects - from conceptualizing to commissioning. It has developed
and constructed 13 hydroelectric power stations and its current total installed capacity
is 5,175MW. NHPCs current total generating capacity is 5,134.2MW, which takes
into account a downgrade of capacity ratings of the Loktak and Tanakpur power
stations by the CEA. NHPCs power stations and hydroelectric projects are located
predominantly in the North and North East India, in Jammu & Kashmir, Himachal
Pradesh, Uttarakhand, Arunachal Pradesh, Assam, Manipur, Sikkim, and West Bengal.
The company and its subsidiary, NHDC, generated 16,582.72 MU and 2,368.45
MU of electricity in FY09; they sold 14,587.88 MU and 2,345.01 MU, respectively.
NHPCs average selling price was INR2.03 per unit and the average capacity indices
for FY07, FY08 and FY09 were 94.11%, 96.13% and 93.61%, respectively.
Joint Ventures
NHPC selectively forms alliances with state governments to undertake development
of projects. Pursuant to a MoU with the government of Madhya Pradesh, NHPC
incorporated NHDC on August 1, 2000 to take advantage of the hydroelectric potential
of the Narmada river basin. In September 2007, it signed a MoU with the government
of Manipur to establish a JV to develop the Loktak Downstream hydroelectric
project. In June 2007, the company entered into a MoA with the Arunachal Pradesh
government to implement the Dibang project on an own-and-operate basis. Further,
on October 10, 2008, it signed a MoU with the JKSPDC, the government of Jammu &
Kashmir and PTC, to implement the Pakal Dul and other hydroelectric projects in the
Chenab river basin with an anticipated aggregate installed capacity of ~2,100MW.
In recognition of NHPCs performance, it was designated a Mini-Ratna Category-I
public sector undertaking in April 2008. The company now has greater autonomy to
undertake new projects without GoIs approval, subject to an investment ceiling of
INR5 billion. The President of India and its nominees currently hold 100% of NHPCs
issued and paid-up equity share capital. After the issue, the President of India will
hold 86.36%of the post-issue paid-up equity share capital.
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Exiting projects of the company
Power station State Installed capacity in MW Year of Commissioning Revenue generatd in FY09 (InCrs)
Baira Siul Himachal Pradesh 180 1981 62.26
Chamera I Himachal Pradesh 540 1994 318.43
Chamera II Himachal Pradesh 300 2004 319.62
Sub Total 1020 700.31
Salal Jammu & Kashmir 690 1987/1996 221.41
Uri I Jammu & Kashmir 480 1997 399.18
Dulhasti Jammu & Kashmir 390 2007 700.59
Sub Total 1560 1321.18
Tanakpur Uttarakhand 120* 1992 51.98
Dhauliganga I Uttarakhand 280 2005 225.31
Sub Total 400 277.29
Rangit Sikkim 60 1999 53.82
Teesta V Sikkim 510 2008 283.78
Sub Total 570 337.6
Loktak Manipur 105** 1983 52.48
Sub Total 105 52.48
Indira Sagar* Madhya Pradesh 1000 2005 486.92
Omkareshwar* Madhya Pradesh 520 2007 269
Sub Total 1520 755.92
Total 5175
*Projects with NHDC *de-rated to 94.2MW **de-rated to 90MW
Revenue Recognition
NHPCs major source of revenue is through long-term power purchase agreements
with SEBs. The company also provides contract-based management advisory and
consultancy services to domestic and international clients in Bhutan and Nepal . The
company has also been issued bonds by SEBs and other clients on which it earns
8.5% interest annually. The bonds issued to NHPC by SEBs are due for maturity
and hence the income from these bonds will decline in the future.
The operations and tariff of the company is regulated by the CERC, which recently
unveiled its new tariff policy for the period FY09-14. The new policy is benefcial
to power companies due to an increase in return on equity to be earned by the
companies from post-tax 14% to 15.5% on pre-tax basis. Further, in the new policy
also depreciation rate has also been increased from 3.6% to 5.28% which will prove
to be benefcial to the company in improving its cash fows. However, Advance
Against Depreciation (AAD) has been withdrawn and as a result of which, any
repayments in excess of depreciation will not be allowed to be recovered through
higher depreciation.
The company has bulk of its projects lined up towards the end of FY11 and FY13
and full impact of which will be refected in FY12 and some projects in FY14.
The company is also planning to expand its contract based advisory services going
forward.
Key strengths
Established track record in implementing hydroelectric projects
Long Long-term power purchase agreements with customers.
Strong in-house design and engineering team
Competent and committed workforce
Strong operating performance
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Key concerns
Hydroelectric projects face considerable opposition from the affected
communities, leading to signifcant delays in execution of a project. NHPC has
been facing opposition from such parties with litigations against the company
and its subsidiary; NHPC may continue to face such opposition in future projects
that it may take up.
NHPCs projects are dependent on rainfall, which determines the amount of
energy that can be generated by its plants. Rainfall in the current year has been
dismal. Continued slack rainfall will impact the power generation and revenues.
Lack of rainfall will lower availability and recovery of fxed costs, impacting
proftability.
The company had negative cash fows in recent fscal years, as its expenditure on
fxed assets exceeded its dividend income. Such negative cash fows may recur
in future fscal years. We have also considered debt repayments as per norms.
NHPCs projects require long gestation periods and substantial capital outlay
before it realizes benefts or returns on investments. The long gestation periods
tend to suppress the companys return on equity with capital work-in-progress
not earning any returns.
NHPCs long-term agreements with state electricity entities expose it to certain
risks, as it does not have the fexibility to modify such contracts. In the event of
any signifcant change in operating circumstances requiring a change in tariff, the
company will have to approach the regulator for a revision in tariff. The delay
in getting approval for the same will impact performance.
NHPC has no history of constructing or operating thermal power projects; so, it
is diffcult to estimate the future performance of its new business ventures
The companys plans
Expansion of installed capacity through JVs and MoUs
Promotion and development of consulting and advisory services
Continued expansion of international activities
Focus on environmental and corporate social responsibility
Investment in technology to modernize operations and improve operating
performance.
New projects
NHPC is involved in various other projects as well. Some are awaiting clearances
from MoEF and some are awaiting approval from the Supreme Court. Projects that
are awaiting clearances comprise a total capacity of 6,731MW.
NHPC is surveying and investigating some projects in Uttarakhand and Arunachal
Pradesh with a total capacity of 7,255MW. The company plans to increase its capacity
to 20,000MW by 2020.
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Capacity (MW) State Installed
capacity in MW
Type Normative
PAF (%)
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Baira Siul Himachal Pradesh 180 Pondage 85 180
Chamera I Himachal Pradesh 540 Pondage 90 540
Chamera II Himachal Pradesh 300 Pondage 90 300
Salal Jammu & Kashmir 690 ROR 60 690
Uri I Jammu & Kashmir 480 ROR 60 480
Dulhasti Jammu & Kashmir 390 Pondage 90 390
Tanakpur Uttarakhand 94 ROR 55 94
Dhauliganga I Uttarakhand 280 Pondage 85 280
Rangit Sikkim 60 Pondage 85 60
Teesta V Sikkim 510 Pondage 85 510
Loktak Manipur 90 Storage 85 90
Indira Sagar* Madhya Pradesh 1,000 Storage 85 1,000
Omkareshwar* Madhya Pradesh 520 Pondage 90 520
Sewa II Jammu & Kashmir NA NA 120
Chamera III Himachal Pradesh NA NA 231
Nimoo Bazgo Jammu & Kashmir NA NA 45
Parbati III Himachal Pradesh NA NA 520
Teesta Low Dam
III
West Bengal NA NA 132
Uri II Jammu & Kashmir NA NA 240
Chutak Jammu & Kashmir NA NA 44
Teesta Low Dam
IV
West Bengal NA NA 160
Subansiri Lower Assam/Ar unachal
Pradesh
NA NA 2,000
Parbati II Himachal Pradesh NA NA 800
Kishanganga Jammu & Kashmir NA NA 330
Total 5,134 5,134 5,254 6,466 6,626 9,426 9,426 9,426 9,426 9,756
Source: RHP & CERC
New Projects
Capex (INR cr) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Sewa II Jammu & Kashmir 665.46
Chamera III Himachal Pradesh 1,405.63
Nimoo Bazgo Jammu & Kashmir 611.01
Parbati III Himachal Pradesh 2,304.56
Teesta Low Dam III West Bengal 768.92
Uri II Jammu & Kashmir 1,724.79
Chutak Jammu & Kashmir 621.26
Teesta Low Dam IV West Bengal 1,061.38
Subansiri Lower Assam/Arunachal Pradesh 6,285.33
Parbati II Himachal Pradesh 3,919.59
Kishanganga Jammu & Kashmir 3,642.04
Total 28115.11 28780.6 36216.74 37278.12 47483.04 47483.04 47483.04 47483.04 51125.08
Debt inflow 466 5,205 743 7,143 0 0 0 2,549
Debt repayment 740 1,529 1,914 1,928 2,507 2,507 2,507 2,512
Net debt chg (274) 3,676 (1,171) 5,215 (2,507) (2,507) (2,507) 37
Source: RHP
Debt repayment calculated as per CERC norms
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A0NIII 1
Peer comparison
Price/BV (x) BV Per share
FY10E FY11E FY12E FY10E FY11E FY12E
NHPC @ INR 30 1.59 1.49 1.38 18.92 20.18 21.68
NHPC @ INR 36 1.85 1.74 1.62 19.46 20.73 22.22
NTPC LIMITED 2.83 2.59 2.36 75.92 82.86 91.07
RELIANCE POWER LIMITED 2.89 2.82 2.62 59.02 60.59 65.13
TATA POWER CO LTD 2.76 2.41 2.02 470.93 538.79 642.17
CESC LIMITED 0.74 0.70 NA 439.38 462.74 NA
*NTPC, Reliance Power, Tata Power and CESC are consensus estimates
Discount to NTPC at lower Price 41.31%
Discount to NTPC at higher Price 31.30%
Source: Bloomberg, ACMIIL Research
Profit and loss statement INR Mn
FY05 FY06 FY07 FY08 FY09
Net Sales/income from operations 19473.2 22939.2 25033.1 31400.7 36789.8
Net Sales 16824.4 20317.5 25033.1 28917.9 34447.8
Contracts and Consultancy Income 253.5 226.3 22459.4 390.6 489.3
Interest on Power Bonds and Long term Advances 2395.3 2395.4 232.9 2092.2 1852.7
Total Income 19894.5 23528.8 2340.8 33216.3 40515.2
TOTAL EXPENDITURE 5171.2 5283 4833.5 6358.2 10898.7
OPERATING PROFIT 14302 17656.2 20199.6 25042.5 25891.1
Other Income 421.3 589.6 766.3 1815.6 3725.4
EBIDTA 14723.3 18245.8 20965.9 26858.1 29616.5
Depreciation 2948.6 3441.4 3686.6 5607.4 6562.9
Interest and Finance charges 3968.2 4127.9 3615.2 6376.6 7760.1
PBT 7806.5 10676.5 13664.1 14874.1 15293.5
Provision for Taxation
Current year tax and Fringe benefit tax 772.4 759.2 1972 1685.1 1677.9
Deferred Tax 449.7 2476.2 3513.6 4001.3 5543.2
Deferred tax recoverable adjustment -449.7 -2476.2 -3513.6 -4001.3 -5543.2
Net TAX 772.4 759.2 1972 1685.1 1677.9
PAT before minority interest & extraordinary items 7034.1 9917.3 11692.1 13189 13615.6
Extraordinary income 0 0 0 461.1 332.7
Profit before minority interest 7034.1 9917.3 11692.1 13650.1 13948.3
Minority interest 457.2 1270.6 1201.2 1579.7 1506.8
Net Profit 6576.9 8646.7 10490.9 12070.4 12441.5
Source: RHP
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Balance sheet INR Mn
Particulars FY05 FY06 FY07 FY08 FY09
Sources of funds
Share Capital 94,256.20 102,152.80 111,982.10 111,824.90 111,824.90
Share Capital Deposit 1,588.90 203.80 - - -
GOI Fund adjustable to Equity 3,338.30 3,255.00 88.30 - -
Reserve and Surplus 41,829.50 47,832.90 55,026.30 63,476.60 72,123.60
Total Networth 141,013.00 153,444.50 167,096.70 175,301.50 183,948.50
Secured loans 55,042.60 61,382.40 75,626.30 99,026.50 107,234.50
Unsecured loans 36,417.90 33,431.90 29,091.60 29,528.40 42,075.20
Minority Interest 10,064.60 11,301.90 12,399.00 13,644.80 14,667.10
Deferred Tax Liability
Advance against Depreciation 9,999.90 10,494.90 12,459.80 13,187.90 14,245.20
Capital Grant/Proportionate Contribution by Govt. of Madhya Pradesh towards Fixed Assets 8,272.80 10,926.60 11,092.60 11,778.80 11,980.40
Total Capital Employed 268,020.00 280,982.20 307,766.00 342,467.90 374,150.90
Application of funds
Gross Block 141,756.00 167,363.30 170,370.20 272,078.80 281,151.10
Less: Depreciation 23,120.90 26,936.20 31,227.00 36,825.10 44,089.30
Net Block 118,635.10 140,427.10 139,143.20 235,253.70 237,061.80
Capital Work In Progress 97,323.70 100,762.60 132,700.20 61,857.80 93,316.70
Construction Stores and Advances 9,959.10 8,370.60 8,616.60 10,773.70 10,969.80
Investments 25,767.70 25,767.70 23,203.30 20,467.90 17,911.90
Net current liabilities 9,130.00 5,410.00 3,840.00 14,110.00 14,870.00
Miscellaneous Expenditure(to the extent not written off or adjusted) (0.10) 245.40 258.00 3.40 23.30
Total Assets 260,815.50 280,983.40 307,761.30 342,466.50 374,153.50
Source: RHP
Cash flow statement INR Mn
FY05 FY06 FY07 FY08 FY09
Net Cash Flow From Operating Activities 16923.3 19994.1 20356.9 32089.7 33565.3
Net Cash Flow/(Used)from Investing Activities -33109.7 -26576.6 -29236.5 -27539.4 -29962.9
Net Cash Flow/(Used) From Financing Activities 17589.9 5774.8 8114.7 10745.5 -1000.3
Net Increase/(Decrease) In Cash And Cash Equivalents 1403.5 -807.7 -764.9 15295.8 2602.1
Cash & Cash Equivalents at the beginning of the year 8332 9735.5 8927.8 8162.9 23458.7
Cash & Cash Equivalents at the close of the year 9735.5 8927.8 8162.9 23458.7 26060.8
Source: RHP
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A0NIII 9
Ratios
Profitability ratios FY05 FY06 FY07 FY08 FY09
Operating Profit Margin (%) 73.44 76.97 80.69 79.75 70.38
PAT Margin (%) 33.77 37.69 41.91 38.44 33.82
ROCE % 4.39 5.27 5.61 6.21 6.16
RONW % 4.66 5.63 6.27 6.89 6.76
Per Share Ratios
Diluted EPS (INR) 0.53 0.70 0.85 0.98 1.01
BVPerShare (INR) 11.06 12.19 13.58 14.25 14.95
P/E (X) at lower band 56.11 42.68 35.18 30.57 29.66
P/E (X) at upper band 67.33 51.21 42.21 36.69 35.59
P/BV (X) at lowe band 2.71 2.46 2.21 2.11 2.01
P/BV (X) at upper band 3.25 2.95 2.65 2.53 2.41
Turnover Ratios
Debtors Turnover 1.87 1.71 1.76 2.23
Fixed Asset Turnover 0.10 0.10 0.11 0.12
Capital Structure Ratios
Debt/equity 11.74 11.54 11.39 12.85 13.47
Current Ratio 1.62 1.32 1.18 1.46 1.40
Quick Ratio 0.70 0.55 0.40 0.78 0.71
Source: RHP
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A0NIII 10
Annexure
Hydropower is a renewable energy; it is more economical and less damaging to the environment as well as less polluting than
most other forms of energy. In a hydroelectric power station, energy is harnessed from water by running it from a height, and in
the process, a hydro-turbine is driven, which rotates an alternator to produce electricity.
Water reservoir: Hydropower plants utilize a water reservoir, which provides energy (i.e., moving water) to rotate the hydro
turbine.
Hydropower turbines: The water fow drives the turbines, making its rotors rotate at high speed.
Alternators: Alternators are coupled to the turbines and they rotate with the rotors. The alternators convert the energy generated
by the rotation of the turbines rotors into electricity.
Various types of hydroelectric developments:
Run-of-the-river (RoR) schemes: Electricity is generated from the water fow of a river or other moving water sources. This type
of project doesnt involve a reservoir to store water infow from the catchment area.
Storage schemes: The reservoir comprises seasonal water surplus for generating electricity during seasons of lower fows when
demand exceeds infow.
Tidal plant schemes: Power is generated via daily differences in tidal levels. The tidal range, or amplitude, is given by the difference
between the high tide level and the subsequent low tide level. The tidal range is not constant even at one site, but it fuctuates to
a smaller or larger extent around a local mean value, depending on the geographical position.
Pumped storage schemes: Water used to generate power during peak demand periods is pumped back into the reservoir during
lean demand periods. A pumped storage plant operates on the principle that the same machines are used for generation of power
during peak hours when power is given to the network and for pumping back water into the reservoir during off peak hours,
utilising power from the system. The provision is based on economics of operation and the availability of enough spare capacity
in the grid to operate the machines as pumps in the low load period.
Water Reservoir
Hydro Turbine
Alternator
Step -up
Transformer
Water
Electricity in
Grid
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A0NIII 11
Disclaimer:
This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or
any of its affliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information
contained in the report. ACMIIL and/or its affliates and/or employees may have interests/positions, fnancial or otherwise in the securities mentioned in this report.
To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views
expressed in the report.
Notes:
Institutional Sales:
Ravindra Nath, Tel: +91 22 2858 3400
Kirti Bagri, Tel: +91 22 2858 3731
Himanshu Varia, Tel: +91 22 2858 3732
HNI Sales:
Pranav Jain, Tel: +91 22 2858 3211