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NHPC - IPO Note.

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  1. 1. ENAM DIRECT IPO NOTE NHPC Issue highlights Issue highlights Issue size: Rs 5032 – 6038 crore NHPC is the largest hydro power company in India with a No. of shares: 1,67,73,74,015 current total installed capacity of 5,175 MW. With 13 Comprising : operating stations including Joint Ventures, it accounts for Fresh Issue: 1,11,82,49,343 Shares 14% of the Hydro power capacity in India. Offer for Sale: 55,91,24,672 Shares Employee Res: 4,19,34,350 Shares Net Issue: 1,63,54,39,665 Shares NHPC plants are located in areas having good hydro Face value: Rs 10 potential. This ensures ample availability of water Bid Lot : 175 Shares resources for power generation. This also results in Issue summary operational advantage. Price band: Rs 30 – Rs 36 Issue opens: Aug 07, 2009 NHPC has been awarded status of “Mini-Ratna” category-I Issue closes: Aug 12, 2009 PSU in April 2008 in recognition of its performance. Lead managers: ENAM Securities, Kotak Mahindra Capital, SBI This Issue has been graded by ICRA Limited and has been Capital Markets Registrar: Karvy Computershare assigned a Grade of 3/5 indicating average fundamentals. Shareholding (%) Absence of fuel cost and attached fuel price volatility in Pre-Issue Post-Issue hydro power generation. 86.36 Government 100.00 Public (incl. - 13.64 High operational efficiency as average capacity indices for employees) FY2008 & FY 2009 stood at 96.12% and 93.61% respectively, being higher than required under CERC regulation. Pre Post issue issue Objects of the issue No. of shares (in cr) 1118 1230 EPS 1.1 1.0# Utilize the proceeds to part finance the construction and # - On a post issue equity base development costs of certain of Identified Projects. Issue break-up Reservation for Shares % of issue Amount utilized towards Issue Expenses (in cr ) Employees 4.19 2 General corporate purposes. QIB 98.13 59 Non-Institutional 16.35 10 Retail 49.06 29 Financial summary Net Income Adj. PAT EPS BV RoE RoCE Period ended (Rs Cr) (Rs Cr) (Rs) (Rs) (%) (%) 31.03.2006 2294 864.7 0.8 15.0 5.9 13.9 31.03.2007 2503 1049.1 0.9 14.9 6.8 16.6 31.03.2008 3140 1207.0 1.1 15.7 7.3 13.0 31.03.2009 3679 1244.2 1.1 16.4 6.9 11.2 # - Pat after minority interest For additional information & risk factors please refer to the Red Herring Prospectus 28th Jul 2009
  2. 2. NHPC ENAM Securities Direct BACKGROUND Company and promoters National Hydroelectric Power Corporation Limited (NHPC) was promoted by the Government of India in November 1975. The company has been designated as “Mini-Ratna” category-I public sector undertaking in April 2008 in recognition of its performance. As a category-I company it has greater autonomy to undertake new projects without government approval, subject to an investment ceiling of Rs. 500 crore set by the government of India. BUSINESS OVERVIEW NHPC is a hydroelectric power generating company committed to the planning, development and implementation of an integrated and efficient network of hydroelectric projects in India. NHPC is involved in all the activities right from commencement to development of hydroelectric projects. NHPC has constructed and developed 13 hydroelectric power stations with a capacity of 5,175 MW. The current total generation capacity of the company is 5,134.2 MW, taking into account total installed capacity of of the Loktak and Tanakpur power stations (combined capacity of 1,520 MW) constructed and operated through its subsidiary NHDC. The company’s power stations and hydroelectric projects are located predominantly in the North and North East of India. IN FY09 the company and its subsidiary sold 14,587.88 MUs and 2,345.01 MUs of electricity, respectively. Currently the company is involved in the construction of 11 hydroelectric projects, which are expected to increase its total installed capacity by 4,622 MW. The company is also awaiting the government approval of five projects with an anticipated capacity of 4,565 MW and for certain joint venture projects with an anticipated capacity of 2,166 MW. The company has experience in the design, development, construction and operation of hydroelectric projects, executing and managing all aspects of projects, from front-end engineering design to commissioning, operation and maintenance. NHPC has selective undertaken projects in alliance with state governments where there is high hydro poetintial and thus tend to enjoy location and operational advantage Strategy Capitalizing on the power sector reforms and the Government of India’s vision of “Power for All.” Intend to enter into long term Long term power purchase agreements with its customers. Plans to invest expand its installed capacity through Joint Ventures and MoUs. The company plans to continue to deliver advisory services to clients and government entities in India and abroad and while taking advantage of opportunities from changes in the Electricity Act, 2003, the Hydro Power Policy 2008, and other regulatory developments. For additional information & risk factors please refer to the Red Herring Prospectus -2-
  3. 3. NHPC ENAM Securities Direct INDUSTRY OVERVIEW Overview India has emerged as one of the fastest growing economies in the world. The Government of India has identified the power sector as a key sector of focus to promote sustained industrial growth with a mission –“Power for All by 2012. Indian Power Sector Demand Supply scenario: The power industry in India has historically been characterized by energy shortages. According to the 17th EPS, India's peak demand will reach 152,746 MW with an energy requirement of 968 bn units (BUs) by FY 2011- 12. By the FY 2016-17, peak demand will reach 218,209 MW with an energy requirement of 1,392 BUs. Consumption levels: The per capita consumption of energy in India is extremely low in comparison to most other parts of the world, in part due to unreliable supply and inadequate distribution networks. Installed generation capacity: According to the Ministry of Power, as on September 30 2007, India has an installed generation capacity of approximately 135,782 MW. The power industry has not grown sufficiently to meet demand and the economy still faces an acute shortage of power. Installed generation capacity by sector: As of September 30, 2007, the state government sector led installed capacity levels with 70,947 MW, or 52.3% of the total installed capacity in India, followed by the central sector at 46,166 MW, or 34.0% of the total installed capacity in India, and by the private sector at 18,669 MW, or 13.7% of total installed capacity in India. Capacity Additions: The tenth five-year plan for 2002 to 2007 targeted a capacity addition of 41,110 MW. However, the actual capacity addition in the 10th five-year plan was just 21,180 MW. The 11th five-year plan recommends generation planning based on an estimated 9.5% growth in required energy each year. Hydro Electricity Hydropower is more economical, less polluting, less damaging to the environment and a renewable source of energy. Developing hydropower enhances energy security and there is no fuel cost during the life of the project. In hydroelectric power station, energy is harnessed from water by running it from a higher height to a lower height. Hydropower stations are capable of instantaneous starting and stopping and are able to accommodate various loading alternatives. This helps to improve the reliability of power systems and is ideal for meeting demand during peak times. Hydropower Potential in India India has enormous potential for hydroelectric generation, as per CEA the potential is 84,000 MW at 60% load factor, which translates to 148,700 MW in terms of installed capacity. As of May 31, 2009 the total installed capacity in the country was 149,392 MW and hydropower accounts for 36,878 MW (24.7%). The estimated potential of all the rivers( at 60% load factor) is 84,044 MW and probable installed capacities is 147,701 MW. For additional information & risk factors please refer to the Red Herring Prospectus -3-
  4. 4. NHPC ENAM Securities Direct Share of Hydropower Despite the benefits of hydro power projects the share of hydropower has steadily declined from around 37% in first five year plan to only 25% in FY2009. The hydro power capacity addition was 7886 MW during the 10th plan which was 54.78% of the targeted addition of 14,393.2 MW. In the 11th Plan the propsed capacity addition is 15,627 MW of which only 3,392 MW has been commissioned and 12,235 MW is under construction. Policy Initiatives The government has set high priority for development of Hydropower power keeping in mind the potential and availability of water resources. The anticipated hydropower capacity additions in the 12th and 14th five year plans stands at 31,000 MW and 36,494 MW respectively ,with a total hydropower capacity to reach 147,774 MW in the 14th Plan. The GoI recently introduced a three-stage process for the development of new hydroelectric projects in the central sector. The new stage-driven process aims to reduce the time and cost overruns of hydroelectric projects. Stage I: Survey and investigation of project site, and preparation of pre-feasibility report; Stage II: Detailed investigation, preparation of a DPR and pre-construction activity including land acquisition; and Stage III: Execution of the project after investment decision through PIB/CCEA Updated CERC regulations Tariffs are determined by reference to AFC, which comprise primary energy charges and capacity charges and are determined by return on equity, depreciation, interest on loan, interest on working capital and operation and maintenance expenses. Ultra Mega Power Projects The threshold limit to obtain mega power project status is 500 MW for hydropower projects. This threshold has been reduced to 350 MW certain states. The number of incentives, including a 10 year income tax holiday help in generating more hydroelectricity and the economies of scale in mega power projects help to substantially bring down power tariffs. Hydro Power Policy 2008 The Hydro Power Policy of 2008 lays emphasis on increasing private investment in the development of hydroelectric projects. The policy aims at attracting private funds by encouraging joint ventures with private developers and the use of IPP model besides promoting power trading and speeding up the availability of statutory clearances Future Outlook The Ministry of Power has set a goal Mission 2012 - Power for All. Based on the 17th EPS, the total energy requirement in India will increase to 968,659 GWh by FY 2012, and 1,392,066 GWh by FY 2017. The estimated the total investment potential of the sector is around Rs 9,000 bn for a specified period up to fiscal year 2011. This presents a significant opportunity for power generation companies, both in the public and the private sector. For additional information & risk factors please refer to the Red Herring Prospectus -4-
  5. 5. NHPC ENAM Securities Direct ISSUE PROFILE Investment positives NHPC is one of the largest hydro power generator in India with a capacity of 5,175 MW accounting for around 14% of total hydro capacity in India Its projects are strategically located nearing areas of high potential for generation of hydro power. These locations also happen to be near energy deficit areas. The company has got into long term power purchase agreements for major portion of capacity under construction. The company has strong operating efficiency as reflected in average capacity index of 93.61% for 200-09. Being a mini ratna the company can enter in to greater autonomy to undertake new projects without GoI approval subject to investment ceiling of Rs 500 cr. Risk factors Long gestation period in term of project execution may depress return on equity in the construction phase. Potential upside is limited as the tariffs are regulated by the government. Any change in tariff policy may adversely affect the revenues. Particularly when projects are located in complex terrain and harsh climatic conditions may delay and thus increase the cost of the projects. The majority of NHPC’s revenues are derived from sales of power to the state electricity entities, as per the directives of the GoI, and there is no assurance that company will always be able to secure payment from state electricity entities. COMPARATIVE ANALYSIS Book Value Company EPS (Rs.) P/E # RONW (%) (Rs.) NHPC ( consolidated ) 1.08 16.45 [●] 6.58 CESC 32 271.5 8.6 12.9 Jai Prakash Hydro 3 21.9 28.2 15.8 KSK Energy 3 14.6 65.9 3.3 NTPC 9.9 69.6 19.6 14.4 Reliance Power 1 57.5 - 1.1 Tata Power Co. 32.1 366.5 34.3 8.1 Neyveli Lignite 8.1 56.4 15.2 12.7 Note: Source: Capitaline, *RHP For additional information & risk factors please refer to the Red Herring Prospectus -5-
  6. 6. NHPC ENAM Securities Direct ENAM Securities Direct Pvt. Ltd. 201, Laxmi Towers, 'A' Wing, Bandra-Kurla Complex, Bandra East, Mumbai - 400 051. Board: 6680 3600 Helpline: 6680 ENAM Fax : 6680 3700 Website: www.enam.com Email: knowledge@enam.com This document has been prepared by Enam Securities Direct Private Limited – Privileged Client Group. Affiliates of Enam Securities Direct Private Limited focused on Institutional Equities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgement by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options and other derivatives as well as non investment grade securities - involve substantial risk and are not suitable for all investors. Enam Securities Direct Private Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. Enam Securities Direct Private Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of ENAM Securities Direct Private Limited. The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Enam Securities Direct Private Limited to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Copyright in this document vests exclusively with ENAM Securities Direct Private Limited. For additional information & risk factors please refer to the Red Herring Prospectus -6-