PSU stock: Ventura predicts that in 2 years, the price of NHPC’s shares might almost double.

PSU stock: Ventura predicts that in 2 years, the price of NHPC’s shares might almost double.

Even if NHPC’s FY27 earnings estimates make the company seem pricey, most of its 9.3 GW of hydro projects are expected to be completed and operational by FY28.

With a ‘Buy’ rating, Ventura Securities has started covering NHPC Ltd. because it sees room for margin expansion and a solid capex-driven revenue growth potential. According to its target price, the share price of NHPC should almost double during the following two years.

Based on FY27 earnings estimates, NHPC could seem pricey, but most of its 9.3 GW of hydro projects under construction are expected to be operational by FY28. Furthermore, according to Ventura, a number of projects totaling 8.3 GW that are presently undergoing survey should be operational within the next 10 to 15 years.

As India’s biggest hydropower generator with big ambitions for development, we think NHPC deserves a higher valuation. We have applied the Discounted Cash Flow (DCF) technique to ascertain its intrinsic value for FY27, given its strategic assets that provide long-term, assured cash flows,” Ventura stated, proposing a target price of Rs 176 for the shares.

With its present market capitalization, NHPC is targeting 20 GW of capacity, which works out to Rs 4,504 per GW, a significant amount less than Adani Green Energy’s Rs 5,550 per GW. According to Ventura, the two businesses are similar as they are both producers of entirely green power, in contrast to others whose portfolios also include some thermal power.

Ventura predicted that throughout FY24–27, NHPC’s sales would increase by 8.8%, EBITDA by 5.2 percent, and profit by 5.2 percent, compound annual growth. According to Ventura, net margins might drop 357 basis points to 34.1 percent, while Ebitda margins would increase 471 basis points to 55.8%.

70% of the company’s new capital expenditures are being financed by debt, which might raise the interest component of P&L and the debt load on the balance sheet. Consequently, it is anticipated that by FY27E, return ratios (RoE and RoIC) will increase by 4 percentage points to 9.4% and 9 percentage points to 5.6%, respectively.

NHPC has significant development potential because of the cost-plus RoE model’s improved economics and the government’s increasing support for hydroelectricity. With a leading hydroelectric capacity of 7 GW, or 15% of the nation’s total hydropower capacity, it is the only “completely green” PSU power production firm in India.

NHPC’s market share is anticipated to increase to 20% when its capacity reaches 12 GW by FY28 thanks to continued capital expenditures. Furthermore, NHPC has 8.3 MW of hydropower projects undergoing survey and approval at this time. “Once operational, these could boost NHPC’s overall hydropower capacity to 24.6 GW, a threefold increase from the current capacities,” Ventura stated.

Over the following five years, NHPC plans to increase the amount of solar and wind electricity it generates from the present 173MW to 1.6 GW. Earnings will be improved by the projected commissioning of both hydro and solar projects, with a full effect predicted in FY27–28, according to Ventura.

“NHPC’s hydroelectric plants operate under a regulated model, offering a RoE of 15.5-16.5 per cent, which may increase to 16-17 per cent for new projects as per the draft CERC Tariff Regulation for FY29,” Ventura stated.

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