Worth even at upper price band

NHPC Ltd. is entering the capital market on 7th August 09 with a public issue of 167.74 crore shares of Rs. 10 each, in the band of Rs. 30 to Rs. 36 per share. Of this, government is selling 55.91 crore shares while fresh issue is of 111.83 crore share. So, if we assume that book will get discovered at Rs. 36 per share, (which is most likely) issue size will be of Rs. 6,040 crore, of which, Rs. 2013 crore will go to government and Rs. 4,025 crore will be retained by the company to meet its capex of Rs. 14,014 crore. Part of this will be financed by debt of Rs. 9,176 crore.

Earlier, it was expected that issue will be made in the band of Rs. 20 to Rs. 24. But due to huge appetite seen for power companies and power IPO, even the company and government has become greedy and have aggressively priced its issue. This may be seen a rise of almost 50%. Purely on book value which is at Rs. 16.50, as at 31-3-09, and considering price discovery at Rs. 36, it is made at a PBV of 2.20 or at 2 on expanded equity base. This is against PBV of 3.85 in case of Adani Power.

However, this is in the backdrop of the company being a profit making with total income being a profit making with total income being placed at Rs. 4051 crore for FY09 with PAT at Rs. 1244 crore, implying an EPS of Rs. 1.11. It has always seen that government IPO, leaves enough scope for prospective investors to make money and this can be expected from this IPO as well.

The company has already developed and constructed 13 hydro power stations with total installed capacity of 5175 MW which are located in J&K, H.P, Uttarakhand, W. Bengal and N.E. States. The company is engaged in constructing 11 additional hydro with capacity of 4622 MW. NHPC is also awaiting for government sanction of five projects with capacity of 4565 MW and certain JVs for 2166 MW. So eventually, NHPC is aiming to become a 10,000 MW plus company, in the near future in hydro space, which is considered quite respectable.

The financials of the company as at 31-03-09 are within acceptable limits with debt equity ratio at 0.80:1 as its total debt is at Rs. 14,900 crore on net worth of Rs. 18,400 crore as at 31-03-09.

The proposed IPO is to fund 7 projects with aggregate capacity of 3240 MW with total project cost of Rs. 14,014 crore, which translates into Rs. 4.32 crore per MW. This kind of cost is quite reasonable, as we have been seeing this type of cost for greenfield Thermal power projects whereas for hydro, conventionally they have a 1.4 to 1.5 X of such projects. Even these are financed at a debt equity mix of 70:30 which would not make ultimate debt equity ratio of the company to crore beyond 1.1:1. Quite comfortable indeed.

The company will be a significant player in Hydro Power and would be PSU like NTPC in this sector. Traditionally, PSU IPOs have always rewarded the shareholders. Going by the financials, fundamentals and track record, it is recommended to apply in IPO even at the upper band of Rs. 36.