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
4 thoughts on “NHPC @ Rs 18 ~ From Defensive to Default ? Despite Dividend Declaration ! ~ Fitch downgrades Long Term Issue Default Rating Outlook to Negative”
I have been visiting your site for long time, This is the first time i am posting something here. Nice work. I wonder what’s your opinion on Noida Toll Bridge? Another laggard?
Dear Salil, thanks for the appreciation and hope to see you respond regularly…For several years Noida Toll has been a Portfolio Select of one Broking House who also does PMS ~ I had disagreed at the time for several reasons as there were a few variables were the risk to assume was not comfortable with me ~ It’s been stuck @ Rs 25 all these years ~ The Breakaway to upper levels hinges on two assumptions ~ development of land around the bridges and DCF of Toll Collections ~ Nodia Toll was a case study where our government actually agreed to huge concessions like allowing the return to be based on escalated project costs without any penalties being levied on the company ~ I have Nodia as a Scrip Watch but not as a Scrip Select
Thank you Gaurav. I somehow feel its a value trap. Another one what’s your opinion on BHEL at current level. Thank you.
Salil, BHEL was my top pick core pick eight to ten years ago ~ I had it in every clients portfolios picking it in the early Hundreds ,when FV was Rs 10,and even getting the 1:1 bonus advantage in June 2007 ~ Power Sector was taking off big time and BHEL was beautifully positioned to supply the Power Plant Equipments ~ It’s order books were overflowing ~ The last Quarter in the FY was always brilliant ~ Clients made good monies and many yet hold this scrip ~ However BHEL has belied great expectations after that brilliant run ~ BHEL was simply unable to ramp up capacities fast enough to cope with the order buoyancy ~ even our govt was frustrated and gave BHEL an ultimatum or else they would route orders to overseas competitors ~ this inability meant cap on some really exciting growth that was simply beckoning
However FY 12 has not been so bad ~ Net is Rs 7087 crs giving an EPS of Rs 29 on the Equity of Rs 489.52 crs ~ From October 2011 the Equity Share FV is now Rs 2 from the earlier Rs 10 ~ Reserves are @ Rs 25000 crs giving a Book of Rs 104 ~ Dividend is 320% (up from 311.5% in FY 11)and with the Share Price currently @ Rs 220 the Relative Earnings and Book Multiples are fairly attractive at 7.5 and 2.1 respectively ~ Market Cap is @ Rs 54000 crs ~ but a year ago was over Rs 100000 crs ~ The Share Price has slid dramatically by over 50% inside one year and at Rs 220 it is near it’s 52 week lows of Rs 197 ~ The Shareholder Set is strong with 67.72% held by the Government and 13+% held by FIIs ~ The Government had intended to divest 5% and BHEL had even filed a DRHP with SEBI in September 2011 which it has since withdrawn
The Power Sector is plagued with Project Implementation delays on account of delays in procuring the crucial assured Coal & Gas Feed committments,non closure of Financial Outlays and delays in deliveries of Plant Equipments ~ BHEL may just have got a breather to catch up ! ~ ~ FY 13 should see Sales crossing Rs 50000 crs and PAT moving towards Rs 10000 crs ~ BHEL is also enthusiastic on it’s diversification plans in Transportation,Oil and Gas,Solar,Nuclear and Water and now has ramped up core manufacturing capacities to over 20000 MW
BHEL looks quite interesting @ Rs 220 ~ Beta is 1.18 ~ Trading Volumes are good for this Sensex and Nifty Constituent Scrip