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Recommendation from Electric Utilities Sectors

Recommendation from Electric Utilities Sectors


This section gives a recommendation of a stock having stock margin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

NHPC Limited 


Business expansion through various projects
Growing financial performance
Higher dividend yield of 6.5 per cent 

The arrival of second quarter of FY20 brought plenty of natural calamities such as floods along with moderation in economic growth. But instead of focusing on losses, we will focus on the positivity it brought to some of the companies. To secure our future financially, we picked NHPC Ltd as our Low Priced Scrip. NHPC is a Central government enterprise for development of hydro power in India. The company is mandated to plan, promote and organize an integrated and efficient development of power in all aspects through conventional and non-conventional sources in India and abroad. In the beginning, NHPC was assigned three projects, i.e. 180 MW Baira Siul in Himachal Pradesh, 105 MW Loktak in Manipur and 345 MW Salal-I in J&K from the erstwhile Central Hydroelectric Project Control Board. Along the journey of over 44 years, NHPC's total installed capacity has reached to 7071.2 MW from 24 projects, including solar and wind projects. 

On a consolidated basis, the total income of the company rose by 12.52 per cent on a yearly basis to Rs2609.95 crore in June quarter of FY20. This was due to gross generation of the company was up by 22 per cent to 8485 MUs for June quarter of FY20 in comparison to the same period of the previous fiscal. The EBITDA grew by 14.21 per cent to Rs1628.97 crore in the same period. EBITDA margin stood at 62.41 per cent in the first quarter of FY20 as against 61.49 per cent in the first quarter of FY19. Net profit climbed 16.15 per cent to Rs989.27 crore in June quarter of FY20 from Rs851.70 crore in the same quarter of the previous year. 

On business expansion front, NHPC is constructing lower Subansiri power plant, which will start after monsoon as NGT has given an order in favour of company. This will have a capacity of 2,000 MW. It is expected to get completed in four years. The cost of project is estimated at Rs20,000 crore. Another project of NHPC named Parbati-II with a capacity of 800 MW is progressing well and commissioning is expected in FY22. The company is also expecting the final approval for capital cost of the five projects by Sept. 2019. The company's new venture of power trading has also started yielding results. During FY2019, the company has earned revenue of Rs13 crore approximately from power trading business. 

Hydroelectric power is among the cleanest sources of green power that plays a critical role in the overall energy mix. The Government of India has announced measures for promoting hydroelectric power. These measures will provide impetus to the development of hydro power sector and NHPC. Also, the company is expanding its business by implementing new projects that will start contributing to company's financials and will help grow its revenue. The best part is that the company is a consistent dividend paying company with a dividend yield of around 6.5 per cent now. Moreover, the share price of the company is trading at PE of around 8.71x, which looks attractive. 

Looking at valuation, growth and higher dividend yield, we recommend our reader-investor to BUY the scrip for the long term.

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