Are NHPC Shares Worth Buying?

Yes, NHPC shares (Rs 44.50) are worth buying because of:

1. India’s renewable energy push

2. Hydropower and NHPC’s phenomenal profit potential

NHPC’s (National Hydroelectric Power Corporation) shares, which are priced at about Rs 44.50 as of November 2022) are worth buying for big gains in the medium term. Here are the reasons:

1. India’s Renewable Energy Push

As of September 2022, India’s installed power capacity is 408 GW. About 42% of this capacity is fulfilled by renewable and nuclear power sources. At the UN Climate Change Conference in Glasgow (COP26), our PM pledged that India will generate 50% of its energy from renewable power by 2030. 

This implies that India plans to add about 33 GW worth of renewable power sources by 2030.

Now, hydropower is regarded as a renewable or clean source of energy because it is fuelled by water, and the water cycle is dependent on the sun. Aside from generating green power, hydropower also provides flood control and clean drinking water, and enables irrigation. It is extremely affordable (over the long term) when compared to other sources of energy

As of September 2022, India generates about 46.85 GW from hydropower sources. Our government plans to increase the contribution of energy from hydropower sources to 70 GW by 2030.

So, India plans to add about 23 GW of hydropower capacity by 2030, and this addition translates to a capacity growth of 7% annually between now and 2030, on a simple average basis. This is a big boon for NHPC.

2. Hydropower’s and NHPC’s Phenomenal Profit Potential 

For the year ended March 2022, NHPC’s installed capacity was 5,551 MW (or 5.55 GW) and its plant availability factor was 88.19%, which implies that the company produced about 4,900 MW (or 4.9 GW) in 2021-2022. (General note: 1 GW = 1 billion watts)

The company generated revenues from the sale of energy worth Rs 8180 crores for the year ended March 2022. Along with income from other sources, the company’s total revenues for the same year worked up to Rs 9,380 crores.

Its profit after tax worked up to Rs 3,538 crores – or a phenomenal 38% of its total revenues.

In H1 2023, NHPC generated total revenues worth Rs 5,812 crores and a profit after tax worth Rs 2,483 crores. This implies:

1. The turnover for the FY 2023 can be forecast at Rs 11,624 crores, or thereabouts.

2. The profit after tax (PAT) for FY 2023 can be forecasted at Rs 4,966 crores.

3. The PAT margins are likely to jump from 38% in FY 2022 to a whopping 42.7% (PAT/Total Revenues).

4. Consequently, NHPC is likely to report a post-tax EPS of Rs 4.95 for FY 2023 (Rs 3.5 in FY 2022). 

5. NHPC’s stock has discounted the EPS of Rs 3.5 in FY 2022 by about 13 times. So, an EPS of Rs 4.98 in FY 2023 can take the price to about Rs 64 in the medium term (say, 6-18 months).

But NHPC’s story does not stop there, it goes way beyond…

According to Mr RP Goyal, NHPC’s Director of Finance:

1. NHPC’s current total capacity as of October 2022 is about 7,000 MW.

2. The company is adding another 7,000 MW capacity, which will be commissioned by FY 2026 or FY 2027. 

3. Along with the capacity expansion, NHPC is also working on other projects and hopes to more than double its capacity by adding another 9,000 MW (as against the 7,000 MW planned).

4. By 2024-25, NHPC will have an installed capacity of 10,000 MW (or 10 GW)

You can well imagine what this capacity addition will do to NHPC’s turnover and profitability. At the current 7,000 MW capacity, the company is expected to generate revenues worth Rs 11,624 crores and profits worth Rs 4,966 crores (an EPS of Rs 4.98). When capacity doubles by 2026-27, its revenues will exceed Rs 23,000 crores and its EPS will double, at least. 

Given India’s net-zero commitment, the push towards hydropower, NHPC’s profitability, capacity, and prospects, I believe that NHPC’s shares are a screaming buy.

Disclosure: Long