Understanding the NHPC Stock: Performance, Prospects, and Valuation 2024

Introduction

NHPC Stock – Recently, many members of my YouTube community have requested a full video on NHPC. In this blog, I will provide you with critical information about NHPC’s stock performance, recent correction, future prospects, and valuation. I will explain why the NHPC stock has been rallying close to 120% in the last year, whether it is a good time to invest in the company, and the future prospects considering the company’s current operations and Indian government policies.

NHPC Limited was established in 1975 and has its headquarters in Faridabad, Haryana, India. The company is engaged in various activities, including hydroelectric power generation, renewable energy development, project management, and consultancy services. With a total installed capacity of 7,071 MW across 24 power stations (22 hydropower and 2 solar), NHPC plays a significant role in India’s energy landscape.

NHPC’s Remarkable Rally

When analyzing NHPC’s stock performance, it is important to note that the company’s sales growth has been modest over the past decade. In fact, the compounded sales growth in the last 10 years is only 5%, indicating a muted performance. Additionally, the company’s quarterly profits have witnessed a decline from 1,600 crores to 600 crores in the quarter ended December 2023.

However, despite these factors, NHPC’s stock has been soaring. To understand this rally, we need to break it down into two components. The first rally, from September to October, was driven by India’s announcement to target 500 gigawatts of non-fossil fuel energy, particularly renewable energy sources. The second rally, from December 2023 to February 2024, was fueled by the Indian government’s announcement of specific steps to promote pumped storage projects, which fall under NHPC’s domain.

These steps include considering large hydro projects (above 25 megawatts) as renewable energy sources, granting policy benefits to the renewable energy sector. These announcements created positive sentiment among investors and contributed to NHPC’s stock surge from 64 rupees to 103 rupees.

The Future Prospects of NHPC Stock

To understand NHPC stock’s future prospects, it is crucial to examine India’s energy landscape. As of October 2023, 56% of India’s energy needs are met by thermal energy sources, 31% by renewable sources, and only 11% from hydro sources, where NHPC operates.

In the late 1960s, hydro contribution declined significantly due to the rise of coal-based power generation. However, recent government policies indicate a renewed focus on the hydro sector. Currently, 92% of India’s hydroelectric power is generated by PSU companies, including NHPC. This dominance positions NHPC strategically in the sector.

NHPC, incorporated in 1975, holds a 15% market share when it comes to hydroelectricity. The company has a nationwide presence but has a strong foothold in the Northeast region of India.

Looking at NHPC stock’s current and future capacity, the company currently has an installed capacity of around 7,000 megawatts of hydropower. Additionally, there are 10,000 megawatts under construction, 996 megawatts awaiting clearance, and close to 4,000 megawatts under investigation. This indicates the company’s intention to increase its capacity to 26,000 megawatts.

While the transition from 7,000 to 26,000 megawatts will take considerable time, NHPC is also diversifying into solar projects. Approximately 10% of the under construction capacity will come from solar sources. Diversifying into solar allows NHPC to tap into quicker revenue generation, as solar projects can be set up relatively faster than hydro projects.

Performance Snapshot

Let’s start by examining NHPC’s recent performance:

1. Revenue: NHPC’s revenue for the fiscal Q3 2024 (ended on December 31, 2023) was INR 20.56 billion, reflecting a decline of 20.41% year-on-year.
2. Operating Expenses: The company’s operating expenses stood at INR 14.84 billion, representing a significant increase of 43.35%.
3. Net Income: NHPC’s net income was INR 4.92 billion, down by 26.76% compared to the previous year.
4. Net Profit Margin: The net profit margin was 23.93%, indicating a decrease of 8.00%.
5. Earnings per Share (EPS): The EPS was 0.52, reflecting a decline of 22.39% year-on-year.

The Valuation of NHPC

Before making any investment decisions, it is essential to evaluate NHPC’s valuation. As of March 2023, the stock is trading around 85 rupees. However, it is crucial to consider historical data and recent events to gauge the potential price range.

In January 2024, the government of India conducted an offer for sale (OFS) for NHPC, setting the price at 66 rupees per share. This indicates a potential lower price range for the stock. Additionally, NHPC’s price-to-earnings (PE) ratio and price-to-book (PB) ratio align with the industry standards, indicating a fair valuation.

According to Alpha Spread’s data, NHPC’s intrinsic value ranges from 58 to 116 rupees per share, depending on various scenarios. This information provides valuable insights for investors to make informed decisions.

Valuation and Financial Ratios

NHPC’s valuation and financial ratios provide further insights:

• Price-to-Earnings (P/E) Ratio: The current P/E ratio is 23.00.
• Price-to-Book (P/B) Ratio: The P/B ratio stands at 2.19.
• Return on Equity (ROE): The forecasted ROE for the next 3 years is 12.7%.

Analyst Recommendations

Analysts have varying opinions on NHPC’s future:

• Price Target: The 6 analysts’ price targets range from INR 60.00 to INR 93.00.
• Long-Term Forecast: Over the next 10 years, NHPC’s stock price could potentially increase to INR 258.81.

The Potential Merger and Its Impact

Another aspect to consider is the potential merger of hydro companies, including NHPC, THDC, Nipco, and possibly SJVN. While this merger can improve efficiency and reduce costs, the major challenge lies in arranging the necessary funds for the acquisition.

The government will need around 11,000 crores to execute this merger, which NHPC currently lacks. However, if this merger plan materializes, it can have a positive impact on the hydro sector, making it more lucrative and efficient.

Conclusion

In summary, NHPC’s stock has experienced a significant rally due to the Indian government’s focus on renewable energy and specific steps taken to promote hydro projects. The company’s future prospects look promising, with plans to increase capacity and diversify into solar projects. The valuation of NHPC aligns with industry standards, and the potential merger presents both opportunities and challenges.

As an investor, it is essential to thoroughly analyze NHPC’s performance, prospects, and valuation before making any investment decisions. This blog provides valuable insights into NHPC’s stock and aims to equip you with the information necessary to make informed choices.

Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .