Buy NHPC; target of Rs 33: Motilal Oswal

Motilal Oswal's research report on NHPC

NHPC's consolidated PAT declined ~17% YoY to INR25b in FY18. It was impacted by: (a) INR3.8b (pre-tax) impact of shutdown at TLDP III & IV plant and prior-period's revenue reversal at Parbati-III U-IV plant; (b) lower other income due to lower treasury and lower late-payment surcharge income; and (c) lower generation at subsidiary NHDC. Highlights from the FY18 annual report: Stripping out the other income, prior-period items, one-offs and shutdown impact, the standalone (S/A) generation PAT grew by a healthy 19% YoY (Exhibit 1) even as regulated equity remained unchanged. The improvement in underlying earnings is estimated to be driven by lower O&M under-recovery and other savings. Core (i.e. generation business) RoE on regulated equity increased ~200bp YoY to ~15%.

Outlook

The stock is attractively trading at ~0.8x FY20E P/BV with a dividend yield of ~5-6%. The DCF based TP is revised to INR33/sh. Maintain Buy.