Ventura Securities has initiated coverage on NHPC Ltd with a 'Buy' rating, as it sees a strong capex-driven revenue growth outlook and scope for margin improvement. Its target price suggests nearly doubling of NHPC share price over the next two years.
While NHPC may appear expensive based on FY27 earnings projections, the majority of its 9.3 GW under-construction hydro projects are slated to become operational by FY28. Additionally, several projects totaling 8.3 GW, currently under survey, are anticipated to come online within the next 10 to 15 years, Ventura said.
"As the largest hydropower producer in India with ambitious expansion plans, we believe NHPC warrants a valuation re-rating. Its assets are strategic and generate long-term, secured cash flows, leading us to apply the Discounted Cash Flow (DCF) methodology to determine its intrinsic value for FY27," Ventura said while suggesting a target price of Rs 176 on the stock.
NHPC is aiming for 20 GW of capacity, equating to Rs 4,504 per GW based on its current market cap, which is notably lower than Adani Green Energy's Rs 5,550 per GW. Both companies are comparable, as they are fully green power producers, whereas others have a mix of thermal power in their portfolios, Ventura said.
Ventura said NHPC’s revenue may grow 8.8 per cent, Ebitda 5.2 per cent and profit at 5.2 per cent, compounded annually, over FY24-27. Ebitda margins may improve 471 basis points to 55.8 per cent, while net margins may decline 357 bps to 34.1 per cent, Ventura said.
"The company is incurring debt to fund 70 per cent of its new capex, which could increase the interest component on P&L and debt burden on balance sheet. As a result, return ratios – RoE and RoIC – are expected to improve 4bps to 9.4 per cent and 9 bps to 5.6 per cent respectively by FY27E," it said.
With increased government support for hydroelectricity and enhanced economics due to the cost-plus RoE model, NHPC has strong growth potential. It is the only ‘completely green’ PSU power generation company in India, with a leading hydropower capacity of 7 GW, representing 15 per cent of the country's total hydropower capacity.
As the ongoing capex expand NHPC's capacity to 12 GW by FY28, its market share is expected to rise to 20 per cent. Additionally, 8.3 MW of NHPC's hydropower projects are currently under survey & clearance.
"Once operational, these could boost NHPC’s overall hydropower capacity to 24.6 GW, a threefold increase from the current capacities," Ventura said.
Also, NHPC is also expanding its solar and wind power generation capacity from the current 173MW to 1.6 GW over the next five years. The expected commissioning of both hydro and solar projects will enhance earnings, with the full impact anticipated in FY27-28, Ventura said.
"NHPC's hydroelectric plants operate under a regulated model, offering a RoE of 15.5-16.5 per cent, which may increase to 16-17 per cent for new projects as per the draft CERC Tariff Regulation for FY29," Ventura said.