Buy NHPC At Attractive Level

 Buy call on NHPC of target price of Rs.30, Target price is lowered due to delay in project execution and its impact on P/BV ratio.

 ‘Buy’ on the stock is maintained due to its outperformance over the MSCI India index and considering the fact that ongoing capacity addition is not reflected in the current market price of the stock.

 Over the last six months, the stock has outperformed the MSCI India index by 15%. In 2010, the stock underperformed the index because of poor execution records of the company.

 It seems that poor execution has already priced in the current stock price. At the current price in the range of Rs.24, the stock appears at a 13% discount to the worst case scenario price of Rs.28. This reflects the pessimism over the execution capabilities of the company.

 However, the company is now showing some progress in the execution front and 678 MW additional capacity is expected to be added by the next six months. Of this, 231 MW Chamera 3 and 44 MW Chutak plants are expected to commence operations by next month.

 These capacity additions may lead to a possible re-rating of the stock, though the capacity additions are slightly lower than the market’s earlier estimates.

 The stock is currently traded at 14.3 multiple of FY12 expected earnings and at 12.2 multiple of FY13 expected earnings.