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Topic: NHPC

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chimak10
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Posted: 01/Aug/2009 at 1:02pm

This would become a very decent.....wealth creator on longer term basis.

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Vivek Sukhani
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Posted: 01/Aug/2009 at 1:05pm

Actually, few good things about NHPC are:

1.Its not unduly leveraged. infact, D/E is less than 1:1.

2.Its a 'running' plant.

3.It has positive earnings.

4.As pointed out earlier, its a zero RM company.

Something to be slightly concerned about:

1.Huge equity and further dilution.

2.Execution risk w.r.t to new upcoming projects.

3.Some fixed components of cost, like depreciation likely to go up in future.

4.Another thing which worries me about these kind of project companies is the problem of 'watered down asset'. Some new projects may have a large component of capitalised interest and depreciation and hence the asset values on the balance sheet may not be genuine. And this problem becomes more stark in case of project delays, whereby the cost continues to get added to fixed asset, without improving the earning potential of the fixed asset.

All in all, it appears to be neither an expensive issue nor a cheap issue. Better to treat these issues as low yield paper redeemable at a decent premium after 10 years.

Edited by Vivek Sukhani - 01/Aug/2009 at 1:07pm

Jai Guru!!!

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chimak10
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Location: India
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Posted: 01/Aug/2009 at 1:14pm

About the execution risk this is from vallabh bhansali.......(He has vested interset)

Q: In your initial talks on the NHPC road shows etc and whatever feed back that you have got so far – do you sense any scepticism on the slippage in targets in the past or do you sense confidence that these people will be able to execute and it is good to subscribe to paper from the power sector India?

Bhanshali: If we look at the execution in the power sector, it is the private sector which has slipped. If we see the capacity addition in the last plan and even in the current plan that is where the major gap has come because the difficulties of acquiring land, getting fuel linkage, getting power evacuated etc have proved to be much more than in earlier envisaged. I think companies like NTPC and NHPC have a fantastic track record of execution and therefore when the investors think of power sector and think of companies it is clearly case by case basis. On the whole we know the challenges of execution in this country and to the extent that the government or government machinery can make a difference at the centre particularly is one story. But collectively the country has to move forward and within which we have found that some1` companies are better at execution than the rest, therefore it is really a company to company story.

Edited by chimak10 - 01/Aug/2009 at 1:15pm

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Vivek Sukhani
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Joined: 23/Jul/2006
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Posts: 6675

Posted: 01/Aug/2009 at 1:24pm

Originally posted by chimak10

About the execution risk this is from vallabh bhansali.......(He has vested interset)

Q: In your initial talks on the NHPC road shows etc and whatever feed back that you have got so far – do you sense any scepticism on the slippage in targets in the past or do you sense confidence that these people will be able to execute and it is good to subscribe to paper from the power sector India?

Bhanshali: If we look at the execution in the power sector, it is the private sector which has slipped. If we see the capacity addition in the last plan and even in the current plan that is where the major gap has come because the difficulties of acquiring land, getting fuel linkage, getting power evacuated etc have proved to be much more than in earlier envisaged. I think companies like NTPC and NHPC have a fantastic track record of execution and therefore when the investors think of power sector and think of companies it is clearly case by case basis. On the whole we know the challenges of execution in this country and to the extent that the government or government machinery can make a difference at the centre particularly is one story. But collectively the country has to move forward and within which we have found that some1` companies are better at execution than the rest, therefore it is really a company to company story.

I would ignore what he has to say. Hydel projects are much more prone to delays. The entire area is so prone to landslide, that it can take the entire turbine with it. I went to Pelling last month and the scene was so different from the last time I visited there. And most of these power plants are at the valley basins which faces the brunt of the landslide.

Jai Guru!!!

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smartcat
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Joined: 29/Mar/2007
Location: India
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Posted: 01/Aug/2009 at 1:39pm

I agree that NHPC has lots of positives, but I can't help but compare NHPC with JP Associates.

- JP associates will have 5600 MW "new power" by 2015 as against NHPC's around 5000 MW of "new power" by 2013.

New Power = Power at higher rates, higher RoE's for the company.

- Current market cap of NHPC will be Rs. 45,000 cr as against Rs. 28,000 crores for JP Associates.

- While NHPC has around 4500 MW capacity on the ground (that generates Rs. 1000 cr profits per annum), JP Associates has just 300 MW (Rs. 150 cr profit). That's why the stress on "newer power" - you earn a lot more from yet to be commissioned power plants than an existing one.

JP Associates also has a construction arm (that builds entire hydro electric power plants), a cement division, a real estate divison etc. Plus, they also will have 1320 MW Thermal power plant plan that will be completed in 2012.

I read somewhere that JP Associates construction arm has 25% marketshare in hydro electric power plant construction in India. So they probably build NHPC's power plants too!

After all this, now let's look at the market cap again -

NHPC: Rs. 45,000 crores

JP Associates: Rs. 28,000 crores.

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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 01/Aug/2009 at 1:48pm

Originally posted by smartcat

I agree that NHPC has lots of positives, but I can't help but compare NHPC with JP Associates.

- JP associates will have 5600 MW "new power" by 2015 as against NHPC's around 5000 MW of "new power" by 2013.

New Power = Power at higher rates, higher RoE's for the company.

- Current market cap of NHPC will be Rs. 45,000 cr as against Rs. 28,000 crores for JP Associates.

I read somewhere that JP Associates construction arm has 25% marketshare in hydro electric power plant construction in India. So they probably build NHPC's power plants too!

After all this, now let's look at the market cap again -

NHPC: Rs. 45,000 crores

JP Associates: Rs. 28,000 crores.

Good way of looking at things. But then, 5000 MW by 2013 and 5600 MW by 2015 are not the same things. On slightest of trouble, the PSU Banks will make a queue to help out NHPC, whereas in case of JP, they will make a consortium and make all attempts to salvage. Availability of finance is much more easy for NHPC than that for JP. Also, another way NHPC can 'free' itself, is by securitising its cash flows.

People are fearing whether this issue will 'sail' through, but somehow I sense that insurance companies will majorly gulp this issue. At less than 3 times book-value, this is not as issue to be ignored.

Jai Guru!!!

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smartcat
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Joined: 29/Mar/2007
Location: India
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Posts: 4243

Posted: 01/Aug/2009 at 1:55pm

Yes - it is not an apple to apple comparison, but an apple to orange one.

Apple (NHPC) is safer and healthier, but Orange (JPA) is much more colourful, sweet and juicy!

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Vivek Sukhani
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Joined: 23/Jul/2006
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Posts: 6675

Posted: 01/Aug/2009 at 2:21pm

Originally posted by smartcat

Yes - it is not an apple to apple comparison, but an apple to orange one.

Apple (NHPC) is safer and healthier, but Orange (JPA) is much more colourful, sweet and juicy!

Wonderful.......I think you have hit the nail on its head.

However, I think JP is not even an orange....its lemon in my eyes.

Jai Guru!!!

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