Project execution key for NHPC

Low volumes and expenses related to delayed projects hit NHPC Ltd in the March quarter. Against expectations of a profit, it reported a loss of Rs.707 crore. 

The company accounted for expenses of Subansiri Lower and Teesta Low Dam projects, both of which have been delayed. The upshot is that employee and other expenses zoomed. Finance charges jumped six times as Subansiri and Teesta interest costs were capitalized. Excluding provisions, NHPC may have reported marginal profit. 

The company’s operating performance is also weak. Incentive income is low and under-recoveries continue. Even though capacities increased, it generated fewer units. Compared with a year ago, generation is down 6%. Last year’s flash floods in Uttarakhand damaged the company’s Dhauliganga power station, leading to stoppage of electricity generation. Hence utilization levels are low. The loss, nevertheless, is unexpected.

The NHPC stock reacted negatively to the results. Even though it recovered subsequently, the outlook remains bleak. According to Emkay Global Financial Services Ltd, around 20% of the company’s book value is invested in projects that are either stuck or facing problems, like Parbati II and Subansiri.

The company expects to restart Dhauliganga fully this month. It hopes to start work on Subansiri from October, and aims to commission Kishanganga by October 2016 and Parbati-II by December 2017. 

All this reads fine, but the problem is that NHPC’s execution record does not measure up. Against the target of 937 megawatts (MW), the company added 807MW of capacity last fiscal year, says IndiaNivesh Securities Pvt. Ltd. 

The delays are impacting NHPC’s finances and return ratios. According to Emkay Global Financial Services, if work on the Subansiri project is not resumed by October, the firm will have to make an additional provision of Rs.500-600 crore in this fiscal year.

At one time price-to-book, the stock’s valuations are not demanding. But inordinate delays and concerns about one-time charges mean there are few reasons why valuations should expand.

Courtesy: Project execution key for NHPC Via livemint