Buy NHPC; target of Rs 34: Emkay Global Financial

Emkay Global Financial's report on NHPC

NHPC offers moderate earnings growth in the medium term (FY22-FY24E: 7% CAGR, FY22-FY26E: 10% CAGR) on the back of a 50% increase in standalone capacity over the next four years. In the past few years, the company has increased its dividend payout, and the yield stands at ~6% currently. With a strong balance sheet (D/E of 0.7x and Rs22.5bn of cash on books), NHPC can increase its capex, especially on Solar assets. The company has emerged as the winner of a 1,000MW Solar project under CPSU Scheme II. We assume coverage on NHPC with a Buy rating and a TP (Sept'22E) of Rs34, based on SoTP. We expect its RoE to touch 12/13% by FY26E from 9.3% in FY22E and 8% in FY15. Our TP implies ~0.9x Sept'23E BVPS. We believe that improving RoE profile is one of the most important factors for re-rating in Utilities.

Outlook

We assume coverage on NHPC with a Buy rating and a TP (Sept'22E) of Rs34, based on SoTP. We expect its RoE to touch 12/13% by FY26E from 9.3% in FY22E and 8% in FY15. Our TP implies ~0.9x Sept'23E BVPS. We believe that improving RoE profile is one of the most important factors for re-rating in Utilities.

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