NHPC @ Rs 18 ~ From Defensive to Default ? 😕 despite Dividend Declaration !
Fitch has just downgraded NHPC ~ The Long Term Issue Default Rating (IDR) Outlook has been revised to Negative from Stable while Fx and Local Currency IDR rating has been reaffirmed at ‘BBB-‘
Chart source : www.bseindia.com
I had rated NHPC as a Defensive Scrip with a Long Term Potential to breakaway into a Higher Price Zone~ The Share Price Range has been fairly narrow over the year with 52 Week High and Low being Rs 26 and Rs 17 respectively ~ Clearly NHPC continues to struggle under Operating Restrictions and Limitations
86.36% of the Equity of Rs 1230o crs is held by the Government and in FY 12 it earned a net of Rs 2772 crs giving an EPS of Rs 2.25 ~ The Networth is Rs 26354 crs at March 31,2012 with Reserves at Rs 14054 crs giving a Book Value of over Rs 21 ~ Dividend of 7% has been declared for FY 12 ~ In FY 12 the Interest Expense was Rs 342 crs and Tax Paid was Rs 745 crs
The Auditors have not qualified the Report but have made a reference to several issues as below
- Accounting of sales on provisional basis pending determination of tariff by CERC
- Capitalization of Corporate Office, Regional Office, Survey & Investigation and other general overhead expenses of construction projects and
- Referring the issue of capitalization of expenditure incurred for creation of assets (enabling assets) not within the control of the company, to Expert Advisory Committee of the Institute of Chartered Accountants of India (EAC of ICAI).
Electricity generation is the principal business activity of the Company. Sales have been recognized as per tariff notified by Central Electricity Regulatory Commission (CERC). Tariff for the tariff period 2009-14 has since been fixed in respect of all the 12 Power Stations. However tariff of Teesta V Power Station is provisional pending approval of revised cost of the Project.
Out of the Initial Public Offering (IPO) proceeds of Rs. 6039 crs made during FY 10, sale proceeds of Rs. 2013 crs was paid to Ministry of Power, Govt. of India and Rs. 4026 crs was retained by company. Out of this Retained Amount Rs 2215 crs has been utilised up to March 31, 2012 for re-coupment of capital expenditure already incurred from internal accruals on the projects specified for utilisation and Rs. 1772 crs has been invested in bank deposits as per extant investment policy of the company and Rs. 39 crs recouped for meeting IPO expenditure.
The IPO Pricing in 2009 was high at Rs 36 and I had opined in a blog post that NHPC would be available @ Rs 25 after Listing ~ Check the Blogs Post Links below which feature NHPC in detail or passing reference ~ In Three Years NHPC @ Rs 18 has seen a 50% Erosion from IPO Pricing ~ The Risk is that it may fall yet further given the tough dues recoverability scenario ~ especially of incremental tariff and other recoverables now allowed with retrospective effect by CERC
Clearly Fitch has seen the Recognition of Income before Actual Billing and the Capitalisation of Expenses as Red Alerts to possible trouble ahead for NHPC ~ NHPC has demonstrated good Corporate Governance in informing the BSE and NSE of the lower Fitch Outlook though I’m sure they would have some arguments on this !
Interesting case ~ NHPC
Will it remain a fairly listless and range bound scrip in the Rs 17 to Rs 25 range or will it move to par value of Rs 10 if States Default or simply Refuse to pay when Billed the additional Tariff and other Recoveries from beneficiary states like Water Cess and Fx Rate Variation and Regional Load Despatch Centre Fees and Charges ?
NHPC is on SCRIP WATCH now ! For me the Longer term Play envisioned has simply got more Longer as Rumblings sound like potential Tumblings in the short and medium term !
If You’re holding NHPC,maybe you ought to consider a switch after taking the dividend of 70 paise in an effort to recover any loss rather than holding out for the Long Term ~ as that 3 years just got longer to atleast 5 years !
Anyone interested in Shorting NHPC in the F & O !? ~ the Market Lot is 9000 shares and you may find some difficulty in finding depth in the Option Contracts where currently the Premium is @ 55 to 60 paise for a June Expiry at Strike Price Rs 17.50 ~ The Future is at Rs 18
Or you want to go Long ! ? Now that would be Courageous !
What do you smart blog readers think will be the NHPC Price Trend in 2012 and 2013 !?
From IPO in August 2009 to date, NHPC has figured on my horizon and therefore blog posts several times ~ in detail or in reference ~…check out the Blog Post Trail below
Your Equity Approach & Strategy will or should depend on whether you want to make money or don’t want to lose any !…NHPC or NTPC ?…or Delta?….New Listing L & T Finance is a safe bet for both objectives
Friday, August 12th, 2011