NHPC’s Q2FY16 adjusted PAT at Rs 1,080 crore (up 25% YoY) was much ahead of our expectation of Rs 8.1 bn, led by (1) higher than expected other income at Rs 330 crore (up 47% YoY) on dividend from subsidiary and surcharge income and (2) higher-than-expected core profit at Rs 800 crore (up 21% YoY) on better recovery of fixed charges. Incentive income at Rs 180 crore was in line with our expectation.
To factor in the strong results, we increase our FY16/17 EPS estimate by 4%, however retain our ‘hold’ rating and target price of Rs 19, as we see low earnings growth over the next 2 years due to muted commissioning (160 MW in FY17).
Total capex at Subansiri now stands at Rs 7,900 crore. In H1, NHPC has treated Rs 270 crore expenses (Rs 520 crore in FY15) incurred on Subansiri project as regulatory assets to be recovered from future tariffs. Management is confident of commissioning TLDP (160 MW) over FY16/17 and Kishanganga (330 MW) in FY17. It further plans to add 50 MW each of wind and solar-based capacity over FY16-17 for which tenders have been awarded.
NHPC has not commenced construction on any new projects since 2009. Further, one of its large under construction projects (2 GW Subansiri) has been stalled due to environment hurdles, and the timeline for resolution of issues is unclear. Further, as per management’s revised guidance, Parbati-2 (0.8 GW) is only expected to be completed in FY19 (vs. FY18 expected earlier) implying muted growth for the next three years.
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