Listing Gains
NHPC's IPO pricing band between Rs30-Rs36 would make its valuations (P/B) at par with NTPC when adjusted for RoEs at the upper end of its band. However, given the inherent interest in the power sector offerings we believe that there are larger chances of gains on listing. We recommend subscribe for listing gains.
With operational capacity of 5,134MW or 14% of country's installed hydro capacity, NHPC is the largest hydro power utility in India. Though NHPC is a hydro power utility, the business model is similar to that of NTPC with plants under CERC regulations earning a minimum ROE of 15.5% and incentive for efficiencies. Our calculations indicate that NHPC earned average project level ROE of 17.3% (14% regulated returns and 3.3% incentives) during past 5 years. However, due to huge equity funded capital work in progress & cash (63% of Book Value), the reported ROEs ranged from 6.5-7.5%. Going forward, we expect an improvement of 250bps in its reported ROEs led by (1) positive impact of new CERC regulations and (2) incremental CWIP funding through 70% debt.
The sustainable ROE of NHPC is lower (~ 30% lower) compared with NTPC's project level ROE of 25-27% and reported ROE of 14-15%. At upper band of the price, the NHPC is valued at 1.9xFY10E Book Value, at a discount of 30% compared with NTPC's valuations of 2.8xFY10E Book Value. The valuation discount is in line with the comparatively lower ROEs.
Though valuations, in our view, appear to be on the richer side, we believe that there would be scope for listing gains on account of the following: (1) limited options to invest in national level utility company, (2) low floating stock and (3) inherent interest in power sector.
--~--~---------~--~----~------------~-------~--~----~
Safe Harbor:
The information contained and provided on this Website provides Investment advice for the education of investors. The posts are an information service only. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. We do not assume any responsibility or liability resulting from the use of such information, judgment and opinions for Trading or Investment purposes.
You received this message because you are subscribed to the Google Groups "Investors Please Listen !" group.
To post to this group, send email to investorspleaselisten@googlegroups.com
To unsubscribe from this group, send email to
investorspleaselisten+unsubscribe@googlegroups.com For more options, visit this group at http://groups.google.com/group/investorspleaselisten?hl=en
-~----------~----~----~----~------~----~------~--~---
No comments:
Post a Comment