NHPC @ Rs 18 ~ From Defensive to Default ? Despite Dividend Declaration ! ~ Fitch downgrades Long Term Issue Default Rating Outlook to Negative

NHPC @ Rs 18 ~ From Defensive to Default ? ūüėē 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

NHPC ~ From Defensive to Default ?

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     read more