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Wednesday, September 28, 2011

NHPC 11 Years Data Review.

CMP: 23.65
Market Cap: 29,029.75Cr
Dividend yield 2.54%

Advantages of Hydro Power:
- A renewable source of energy - saves scarce fuel reserves.
- Non-polluting and hence environment friendly.
- Long life - The first hydro project completed in 1897 is still in operation at Darjeeling is still in operation.
- Cost of generation, operation and maintenance is lower than the other sources of energy.
- Ability to start and stop quickly and instantaneous load acceptance/rejection makes it suitable to meet peak demand and for enhancing system reliability and stability.
- Has higher efficiency (over 90%) compared to thermal (35%) and gas (around 50%). (I did not know that!)
- Cost of generation is free from inflationary effects after the initial installation.
- Storage based hydro schemes often provide attendant benefits of irrigation, flood control, drinking water supply, navigation, recreation, tourism, pisciculture (breeding, hatching, and rearing of fish under controlled conditions) etc.
- Being located in remote regions leads to development of interior backward areas (education, medical, road communication, telecommunication etc.)

Lets look at the 11 yrs data which is available.

As we can see:
1. 11 years of continious increase in dividend payouts
2. Reserves have also been growing regularly.
3. Sale price per unit has also been increasing.

Equity dilution has also taken place and units of power generation is also increasing steadily. 
Rate of Equity dilution as compared to increase in Dividends is pretty low. Also going forward  don't see future equity dilutions as Debt is lower so capacity expansion can be done by adding new debt. 

Conclusion: NHPC is quoting below the IPO Price.. also current dividend yield is 2.54% and considering its track record of consistent increase in dividends we can expect long term shareholders to get higher % dividend yields. The stock price will also respond positively to higher dividends. Energy prices are sure to increase so sale prices will also increase. NHPC is the largest player in Hydro Power sector and we can expect it to get a larger share of new Hydro power projects based on experience and size.  Its a good safe compounder with almost assured increase in dividend payouts in the future. A no-brainer stock to buy.

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