Analysts Corner: Hold ‘buy’ on NHPC with target price of Rs 34

NHPC recently received approval for two projects – Jal Power Corporation (JPCL) Rangit stage-IV and Ratle. The company is likely to speed up the tendering process and start construction activities in the short term. NHPC has received approval from MoP for an investment of 9.4 billion rupees for the acquisition and construction of balancing works for the 120 MW Rangit phase-IV project. It also received the approval of the board of directors for the formation of a JV for 850 MW Ratle in J&K with a capital investment of Rs 510mn (51% stake). Once construction activities begin, we expect both projects to be commissioned in 5-7 years. All of these developments are positive for NHPC and will help drive long-term growth and profits. Hold BUY.

Rangit Tier IV investment receives MoP approval. After receiving approval from NCLT Hyderabad on NHPC’s 1.65 billion rupee resolution plan for Jal Power Corporation’s (JPCL) Rangit 120 MW Rangit project in January 2020, MoP approved the investment of 9.4 billion rupees by NHPC for the acquisition and construction of balancing works. The tender process for the construction of the balancing works is expected to start from April 21. The completion period is 42 months.

The board approves the formation of a JV for the 850 MW Ratle project. NHPC had signed a memorandum of understanding with the J&K government for the execution of five hydroelectric projects totaling 4,134 MW for an estimated investment of 350 billion rupees. The NHPC Board of Directors has approved the formation of a JV for the implementation of the 850 MW Ratle project on the Chenab River at J&K. The board also approved the investment of Rs 510mn as equity by NHPC in the company JV, in which NHPC will hold 51% of the capital and the remainder by JKSPDCL.

Researching the development of green hydrogen. NHPC collaborated with the Hydrogen Energy Center at Banaras Hindu University to conduct research on the development of green hydrogen and to drive the development of hydrogen energy, based on the National Hydrogen Energy Mission announced in the budget of Union 2021. High dividend yield and attractive valuations: increase of NHPC in stand-alone mode the capacity from 5,551 MW to 8,351 MW in FY24E brings its regulated equity to Rs 221 billion in FY24E, at a CAGR of 14.5 %, which translates to a CAGR profit of over 11%. At CMP of Rs 24.5, the stock trades at 7.2 P / E and 0.7 P / B based on year 23E and a dividend yield of 6.5% (interim dividend of Rs 1.25 / sh already announced). We maintain our buy rating and our target price of Rs 34 on NHPC.