Reviews

In this edition, we have reviewed NHPC Limited and Ahluwalia Contracts (India) Limited. We suggest our readerinvestors to HOLD NHPC Limited and Ahluwalia Contracts (India) Limited. 

We had recommended NHPC Ltd. in Volume 39, Issue No. 10 dated April 8, 2024 — April 21, 2024, under the ‘Low Scrip’ segment. The recommended price for the stock was ₹93.18. We had recommended the stock on the basis of its strong fundamentals, and capital expenditure and investment plans. NHPC, a Mini Ratna Category I public sector utility, is Government of India’s flagship hydroelectric generation company. It is primarily involved in the generation and sale of bulk power to various power utilities. 

Its other business segments include providing project management, construction contracts and consultancy assignment services and trading of power. In Q2FY25, on a consolidated basis, its revenue increased by 4.12 per cent YoY to ₹3,051.93 crore compared to ₹2,931.26 crore from the previous year’s same quarter. 

On a sequential basis, the company’s revenue increased by 13.28 per cent. Its PBIDT excluding other income increased by 1.73 per cent to ₹1,798.8 crore YoY as compared to ₹1,768.18 crore from the previous year’s same quarter, while sequentially it increased by 22.99 per cent. The net profit stood at ₹965.79 crore compared to ₹1,615.23 crore, a YoY decrease of 40.21 per cent, while sequentially it decreased by 5.4 per cent from ₹1,020.93 crore. At TTM, the shares of NHPC are trading at a PE of 27.9 times, which is lower than its industry PE of 34.8 times. 

If we look at its PBV, it is currently at 2.09 times, which is higher than the industry PBV of 1.94 times. The company has a three-year average return on equity (ROE) of 10.3 per cent and a return on capital employed (ROCE) of 7.44 per cent. NHPC is exploring renewable energy initiatives, such as pumped storage projects across multiple states and solar power projects. It has signed a MoU with the Government of Rajasthan for an investment plan of `50,000 crore. The company has fully commissioned an 88 MW floating solar power project. 

NHPC has a current debt equity ratio of 0.84 and plans significant capital expenditure over the next several years. The insurance and financial recovery for its Teesta V project is fully insured, with the expectation of a recovery of ₹410 crore. The plant availability factor (PAF) for NHPC in Q2FY25 was 82.68 per cent, down from 91.93 per cent in the previous year. Its key projects include the Subansiri Lower Project, Parbati II HE Project, Dibang Multipurpose Project and the Teesta V Project. Given the order book and the company’s financial status, we recommend HOLD. 

We had recommended Ahluwalia Contracts (India) Ltd. in Volume 39, Issue No. 11 dated April 22, 2024 — May 5, 2024, under the ‘Choice Scrip’’ segment. The recommended price for the stock was ₹1066.95. We had recommended the stock on the basis of the company’s healthy order book, revenue growth and order inflow. The company is engaged in engineering and contract construction, delivering state of-the-art infrastructure and buildings projects for clients in India. Its experience includes working various projects related to residential, commercial, institutional, corporate, power plants, hospitals, hotels, IT parks, metro stations and depots, and automated car parking lots for the government as well as private clients. 

The company has several clients across the hotel, institutional and hospital segments, including The Leela, Fortis Healthcare, Hyatt Group, Amity University, Tata Group and Apollo Hospitals, to name a few. In Q2FY25, on a consolidated basis, its revenue increased by 12.19 per cent YoY to ₹1,011.48 crore compared to ₹901.55 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 10.02 per cent. The net profit stood at ₹38.42 crore compared to ₹55.29 crore, a YoY decrease of 30.5 per cent, while sequentially it increased by 25.52 per cent from ₹30.61 crore. 

The PBIDT excluding other income decreased by 18.19 per cent to ₹73.44 crore YoY as compared to ₹89.77 crore from the previous year’s same quarter, while sequentially it increased by 21.46 per cent. At TTM, its shares are trading at a PE of 32.6 times, which is higher than its industry PE of 30.1 times. If we look at its PBV, it is currently at 3.91 times, which is higher than the industry PBV of 2.96 times. The company has a three-year average return on equity (ROE) of 16.6 per cent and a return on capital employed (ROCE) of 24.5 per cent. 

The company’s focus is on operational efficiencies, cost management and maintaining a balanced order book between government and private clients amidst labour shortages and volatile material cost. As of September 30, 2024, the net order book was ₹16,193.45 crore, with total order inflow for FY25 being ₹6,699.70 crore. The company’s guidance for FY25 is approximately 15 per cent, with margin expectations of around 9 per cent. It anticipates revenue growth between 15–20 per cent for FY26 and an order inflow target of ₹5,000–6,000 crore for FY26. Hence, we recommend HOLD. 

(Closing price as of November 25, 2024)