IREDA is Getting all the Attention. But No One's Talking about this Little-Known Stock

There has been an incredible rally in the Indian stock market recently. One primary reason that's fuelling the bullish sentiment is Fed's comments about rate cuts in 2024.

When the FOMC meeting press release was out yesterday, it all looked like business as usual - the Fed kept rates steady and unchanged, but also signalled that as many as three rate cuts are coming in 2024.

Not even 15 minutes into the trading session back home, and the fireworks went off! Indian indices spiked at open and remined investors about the 'Everything Rally' that we saw during the pandemic.

The massive upmove in Indian share market seen towards the end of the year has taken the returns to above average.

Not just Indian markets, but for most conventional asset gains classes. Even gold has posted double digit percentage this year.

And of course, we can't forget bitcoin, which, despite its drawdown earlier this year, still boasts the title of the best performing asset class of 2024.

Coming back to Indian markets, one stock that has taken the investment community by storm is IREDA.

Shares of IREDA have continued their upward movement for consecutive sessions, tripling from Rs 32 to Rs 112 in just 10 trading sessions.

Today again, the stock is locked in 5% upper circuit band.

While everyone's paying attention to this massive rally in the renewable energy financing arm, there's another low-priced stock from the renewable energy sector that's slowly inching up: NHPC.

In the past one month, NHPC share price has gained 24%. This takes the overall gains for year 2023 to above 65%.

A Word About the Company

NHPC, a Mini Ratna category I public sector entity, is India's flagship hydroelectric generation company.

The company sells bulk power to power utilities to eastern, northern, north-eastern India under long-term power purchase agreements (PPA).

With an increasing need for renewable energy sources, the company plays a vital role in providing hydropower to meet the peak power requirements in the country when solar power fails to fulfil electricity requirements.

Why NHPC Share Price is Rising

The recent rally in NHPC shares comes after Singapore's Sembcorp Industries' renewables unit was awarded a 300 mega-watt (MW) solar power project by NHPC.

NHPC committed to buy power output from the project for 25 years under a long-term power purchase agreement (PPA).

Apart from that, the company posted decent numbers for the first half of FY24.

While declaring its half yearly numbers, NHPC said it received Rs 50.7 billion (bn) from beneficiaries against sale of power.

Even though it reported a marginal fall in revenue, about 5% compared to the previous year, investors are optimistic about the forthcoming quarters as NHPC is expecting higher incentive income to be recognized in the second half of 2024.

What's more, the company has long term trade receivables amounting as high as Rs 60 bn as of September 2023.

On top of this, the company has already incurred a capex of Rs 41 bn so far in FY24.

The drop in power generation was due to lower water availability and intense rain and flood in some parts of Himachal Pradesh.

During the second quarter of FY24, NHPC's board approved the JV agreement for formation of a JV company between NHPC and Andhra Pradesh Power Generation Corporation.

This was done for implementation of pumped storage hydro power projects and renewable energy projects in Andhra Pradesh.

NHPC continues to get long term agreements because it sells the extra energy produced beyond the design capacity at a lower rate. And it has a track record of operating at maximum plant availability.

Apart from this fundamental reasoning, the other reason why NHPC share price is rising is because it's showing a multi-year breakout.

What Next?

Note that NHPC has been in the limelight previously for cost overruns and delayed projects.

However, investors in the stock get comfort from the fact that it has a unique mechanism of tariffs set in place.

Some of its hydro projects get full cost recovery due to this mechanism which ensure the company has sufficient cash on its balance sheet.

The company's management is expecting to receive the tariffs for the past six years in current financial year.

NHPC has a massive capex outlay for doubling the installed 7,000 MW capacity by FY27. By then, it's expecting peak revenue of Rs 190 bn.

For the next 10 years, the management has guided for a capex of Rs 90-100 bn.

In the September 2023 quarter, the company posted its highest ever quarterly profit at Rs 16.9 bn.

Even if we look at its long-term financials, the numbers show an increasing trend.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	89,829	100,078	96,479	91,442	106,074
Growth (%)	16%	11%	-4%	-5%	16%
Operating Profit	59,065	63,452	64,421	62,054	69,946
OPM (%)	66%	63%	67%	68%	66%
Net Profit	25,956	28,849	32,718	35,236	38,900
Net Margin (%)	29%	29%	34%	39%	37%
ROE (%)	9.3	10.8	11.2	11.1	11.8
ROCE (%)	10.4	7.9	9.1	6.5	9.0
Dividend (Rs)	1.5	1.5	1.6	1.8	1.9
Debt to Equity (x)	0.6	0.7	0.7	0.8	0.8

Data Source: Ace Equity

Also, the government holds over 70% in the company so that's an added benefit of government support which helps in NHPC getting hydro power projects.

After the recent run-up, the stock price is trading at a PE multiple of 16x and a price to book value ratio of 1.7x.

This compares to its 5-year average PE of 8.9x and a 5-year average price to book ratio of 0.8x.

Here's a table comparing NHPC with its industry peers.

Comparative Analysis

Company	NHPC	Adani Energy	Adani Green	JSW Energy
ROE (%)	11.8	13.8	27.5	8.2
ROCE (%)	9.1	10.5	8.5	8.1
Latest EPS (Rs)	4.1	11.8	8.2	9.7
TTM PE (x)	15.8	87.6	173.2	47.1
TTM Price to book (x)	1.7	9.7	28.5	3.8
Dividend yield (%)	2.9	0.0	0.0	0.4
Industry PE	20.5
Industry PB	3.1

Data Source: Ace Equity

To know more, check out NHPC's financial factsheet and its latest quarterly results.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...