>NHPC LIMITED: Established track record in implementing hydroelectric projects (ICRA)

Company Overview: Incorporated in 1975, NHPC Limited, formerly known as National Hydroelectric Power Corporation Ltd, is the largest hydro power company in India. It has developed and constructed 14 power stations and its current total installed capacity is 5,295 MW with a major presence in the Northern and Eastern parts of the country. Its 51 per cent subsidiary, NHDC, has 1,520 MW under operation and is also considering development of a 1,320 MW thermal power project in Madhya Pradesh. The company has 4.6 GW capacity under construction, while 6.7 GW is under different stages of planning and awaiting clearances.

Key Business Highlights
■ Established track record in implementing hydroelectric projects
NHPC has vast experience in the development and execution of hydroelectric projects. The company has managed the development and implementation of 12 hydroelectric projects, and two thermal power projects through its subsidiary, NHDC. The two hydro power projects ‐ Chamera‐II and Dhauliganga‐I were completed ahead of schedule.

■ New tariff order for FY10‐14
New tariff norms will provide incentives for early commissioning of projects, while the ROE has also improved to 15.5 per cent from 14 per cent. NHPC is entitled to receive incentives for achieving a plant availability factor greater than the Normative Annual Plant Availability Factor (NAPAF) as well as for generating energy in excess of the design energy level of the plant.

■ Long term PPA (power purchase agreements) with the customers
At the time of making investment decisions on new capacity or expansion of existing capacity, NHPC typically has commitments for the purchase of the output. In FY09, NHPC derived 84.81 per cent of its consolidated total income from the sale of energy to State Electricity Boards (SEB) and their successor entities, pursuant to long term power purchase agreements. These billings to
state entities are currently secured through letters of credit generally entered into through tripartite agreements among the GoI, the RBI and respective state governments.

■ Capacity expansion by 80 per cent by 2013
NHPC is set to increase capacity by 80 per cent from 5.1 GW in FY09 to 9.4 GW by FY13. The company has 4.6 GW capacity under construction, while 6.7 GW is under different stages of planning and awaiting clearances from CCEA. Further 7.6 GW is under survey and investigation.
■ Key Risks

• Hydro‐power projects typically require a long gestation period thus posing a risk of delay in execution.

• Border dispute with China over Arunachal Pradesh can hamper the future prospects of projects planned in that region by NHPC.

Valuations
The stock is currently trading at a P/E multiple of 17.1x on its FY10 EPS of Rs. 1.8 and 11.9x EV/EBITDA multiple based on FY10 EBITDA of Rs. 4,129 crores.

To read the full report: NHPC LIMITED