NSE NHPC: Any Prospects After the Price Has Doubled?

Key takeaways:
—NHPC full form is the “National Hydroelectric Power Corporation”.
-NHPC share price is 100.7 INR as of 28 June: NHPC stock is overvalued.
-The company has a moderate rating by Eyestock which means it is a somewhat risky investment.

NHPC company profile

NHPC is a government-private renewable hydroelectric power generator. Today it is one of the top renewable energy companies in the region and the largest hydropower development business in India. The company has an installation base of approximately 7071.2 megawatts (MW) from over 24 power stations. 

NHPC fundamental analysis

If you would like to get an objective assessment of a company, you are in the right place. Eyetock’s comprehensive analysis covers NHPC financials according to 10 indicators, providing the most unbiased conclusion in the form of the Eyestock proprietary company rating. If it equals 100% or above the company`s shares are viable investments because they passed the 10-step test.

NHPC Ltd has only 56% of the 100%-ideal stock to invest in the long term.
Let’s run through the key PROs and CONs of the business based on the latest NHPC results.

Outstanding financial performance

When we are dealing with a gross margin of 91% and a net profit margin of over 40%, we can state the company is profitable and has a strong competitive advantage. Although part of the company’s merits can be attributed to the specifics of the industry and the fact that it is state-owned. However, on the contrary, the uncharacteristically high level of earning quality adds points to it. It just so happened that the company scored almost all its points on the final Eyestock rating due to good profitability indicators. This company is rightfully included in our stock picks of Most Profitable Mega-cap and Large-cap Companies in India.
Further risks await us.

Weak financial position

The utility company cannot be counted among those whom we call fully solvent. Analyzing the NHPC balance sheet, we came to the conclusion that debt is growing at a faster rate than equity and is not fully covered by operating cash flows.

Return on Equity is just 8%

Some analysts will argue that this is an insufficient level for a company in this industry. However, according to our calculations, NHPC ranks only 15th out of 19 mega and large-cap companies in the Independent Power and Renewable Electricity Producers industry in terms of ROE. For example, another Indian company from Utilities sector — Adani Power Ltd — has a ROE of 81%. See more in the Financials of this company.

NHPC shares price target.

NHPC quarterly results of 1Q2024 show a negative earnings growth rate -58%. How do we interpret this? Our quantitative valuation model is based on historical analysis of the Price-to-Earnings Ratio (P/E). While net profit is declining relative to the same period last year, the price of one share has almost doubled from 45 INR to 100 INR.

The P/E ratio has increased since the beginning of 2023 from 10 to the current 32. The median meaning of the multiplier over the last 4 years was only 9. Producting 9 by NHPC`s earnings per share for the last 12 months (3.12 INR) we obtain fair value just below 28 INR per share using the historical relative method based on P/E.

NHPC stock is overvalued by 72% by this quantitative method. It means the current price may concern as a High-Risk Entry Point. We are more pessimistic about the company’s value than Wall Street analysts with a consensus price of 93.5, which is 7% lower than the current one.

Bottom line

Based on our analysis of the company, we conclude that it is a somewhat risky investment based on the fundamentals. Moreover, the current price is high enough for long-term investment. And even a NHPC dividend yield of around 2% will not change our opinion to avoid this stock at current price levels.

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