IPO Fact Sheet

Visit us at www.sharekhan.com August 03, 2009 NHPC IPO Fact Sheet Issue details Issue opens Issue closes Issue size Fresh issue Offer of sales by government Of which Employee reservation Net issue Face value Break-up of net issue to public: QIB's portion Retail portion Non-institutional portion Price band : 98.12 crore equity shares : 16.35 crore equity shares : 49.06 crore equity shares : Rs30-36 per share : 4.19 crore equity shares : 163.54 crore equity shares : Rs10 each : August 7, 2009 : August 12, 2009 : 167.73 crore equity shares : 111.82 crore equity shares : 55.91 crore equity shares Rs1,677.4 crore to Rs2,012.8 crore would go to the GoI. The objects of the issue are: part financing of the construction and development costs of certain projects, namely Subansiri Lower, Uri – II, Chamera - III, Parbati – III, Nimoo Bazgo, Chutak, and Teesta Low Dam – IV; (Please refer exhibit 1 for details). general corporate purposes; and listing benefits. Fund requirements Particulars Approved cost of identified projects Issue expenses General corporate purposes Total Funding plan Particulars Debt Subordinate debt from GoI Sub total Equity from GoI Internal accruals Proceeds of the fresh issue Total Amount (Rs crore) 9,175.76 634.00 9,809.76 2,060.08 [.] [.] [.] Amount (Rs crore) 14,013.96 [.] [.] [.] Object of the issue The issue of 167.73 crore equity shares (of which 111.82 crore is fresh issue and 55.91 crore is offer for sale by the Government of India [GoI]) is aimed at raising Rs5,032.1 crore to Rs6,038.5 crore (depending on the price band of Rs30-36 per share). Of the total proceeds of the issue Exhibit 1: Identified projects Identified project Location Generating plant capacity (MW) Original date of completion (as per CCEA sanction) September, 2010 November, 2009 August, 2010 November, 2010 August, 2010 February, 2011 September, 2009 Estimated date of completion (as per management estimates) December, 2012 February, 2011 August, 2010 November, 2010 August, 2010 February, 2011 August, 2011 Approved costs (Rs crore) 6285.33 1724.79 1405.63 2304.56 611.01 621.26 1061.38 Subansiri Lower Uri II Chamera III Parbati III Nimoo Bazgo Chutak Teesta Low Dam IV Arunachal Pradesh Jammu & Kashmir Himachal Pradesh Himachal Pradesh Jammu & Kashmir Jammu & Kashmir West Bengal 2,000 (8 x 250) 240 (4 x 60) 231 (3 x 77) 520 (4 x 130) 45 (3 x 15) 44 (4 x 11) 160 (4 x 40) Sharekhan Ltd A-206, Phoenix House, 2nd Floor, Senapati Bapat Marg, Lower Parel, Mumbai - 400013, India. sharekhan ipo flash NHPC Shareholding pattern After the issue the total number of the company’s shares will increase from 1,118.25 crore to 1,230.07 crore, bringing down the Government’s stake to 86.36% of the diluted equity. No. of equity shares President of 11,182,493,430 India, acting through the MoP (including nominees) Public (including 0 eligible employees) Total 11,182,493,430 % 100 No. of equity shares 10,623,368,758 % 86 0 100 1,677,374,015 12,300,742,773 14 100 Development Corporation (NHDC). The company’s power stations and hydroelectric projects are located predominantly in the north and north east of India, in the states of Jammu & Kashmir, Himachal Pradesh, Uttarakhand, Arunachal Pradesh, Assam, Manipur, Sikkim and West Bengal. The company is presently engaged in the construction of 11 additional hydroelectric projects, which are expected to increase the company’s total installed capacity by 4,622MW. Furthermore, NHPC is awaiting the government’s sanction for five more projects with a total anticipated capacity of 4,565MW. In addition, NHPC is awaiting the government’s approval for certain joint venture projects with a total anticipated capacity of 2,166MW. Key positives Established track record in implementing hydroelectric projects NHPC has experience of developing and executing hydroelectric projects. The company has managed the development and implementation of 13 hydroelectric projects, including two through its subsidiary, NHDC. NHPC has completed projects that are located in the geotechnically sensitive Himalayan terrain and in inhospitable areas that are often difficult to access. The company’s proven execution capability is a key advantage for securing projects. Long-term PPAs with customers As of March 31, 2009, most of the output from the company’s installed capacity was contracted for through Company background National Hydroelectricity Power Corporation (NHPC) is a hydroelectric power generating company dedicated to the planning, development and implementation of an integrated and efficient network of hydroelectric projects in India. The company carries out all activities related to the development of hydroelectric projects, from the concept stage to the commissioning stage. It has developed and constructed 13 hydroelectric power stations with a total installed capacity of 5,175 megawatt (MW). Currently, the company’s total generating capacity stands at 5,134.2MW, which takes into account a downgrade of the capacity ratings of the Loktak and Tanakpur power stations by the Central Electricity Authority (CEA). This total installed and the generating capacity include two power stations with a combined capacity of 1,520MW, constructed and operated through NHPC’s subsidiary, Narmada Hydroelectric Operational projects Power station Baira Siul Loktak Salal Tanakpur Chamera I Uri I Rangit Chamera II Dhauliganga I Dulhasti Teesta V Total Completed projects with NHDC Indira Sagar Omkareshwar Total Grand Total State Himachal Pradesh Manipur Jammu & Kashmir Uttarakhand Himachal Pradesh Jammu & Kashmir Sikkim Himachal Pradesh Uttarakhand Jammu & Kashmir Sikkim Capacity installed (MW) 180 105 690 120 540 480 60 300 280 390 510 3,655 1,000 520 1,520 5,175 Year of commissioning 1981 1983 1987/1996 1992 1994 1997 1999 2004 2005 2007 2008 Generated revenue in FY2009 (Rs crore) 62.3 52.5 221.4 52.0 318.4 399.2 53.8 319.6 225.3 700.6 283.8 2,688.9 486.92 269 755.9 3,445 Madhya Pradesh Madhya Pradesh 2005 2007 Sharekhan 2 August 2009 sharekhan ipo flash NHPC long-term power purchase agreements (PPAs). In FY2009, the company derived Rs3,436.22 crore or 84.81% of its restated consolidated total income from the sale of energy to the state electricity boards (SEBs) and their successor entities, pursuant to long-term PPAs. These billings to state entities are currently secured through letters of credit generally entered into pursuant to a tripartite agreement among the GoI, the Reserve Bank of India (RBI) and the respective state governments. In addition, the company can either secure payment by regulating the power supply to the defaulting entity or recover payments directly from the GoI (Government of India) Central Plan assistance funds that are given to the concerned state governments. Strong operating performance NHPC’s performance and efficiency are measured through the average capacity index and the generation targets achieved. In FY2009, the company generated a total of 16,582.72 million units (MUs) of electricity and its cumulative capacity index was 93.61%, which is higher than the cumulative capacity index levels required under the Central Electricity Regulatory Commission (CERC) regulations. The company monitors, renovates and modernises power stations, which increases the efficiency of the plants and equipment. The company’s ongoing monitoring and maintenance techniques offer it a competitive advantage in an industry where reliability and maintenance costs are a significant determinant of profitability. Competent and committed workforce NHPC has a competent and committed workforce. The skill, industry knowledge and operating experience of the company’s senior executives provide NHPC with a competitive advantage. The company invests significant resources in employee training, development of and uniform operational systems, processes and staff training procedures. Strong in-house design and engineering team The company has an in-house team for project design and engineering capabilities ranging from the concept stage to the commissioning of projects. This team is supported by international and domestic project consultants. As of July 20, 2009, the company has approximately 1,185 in-house engineers with expertise in a range of engineering disciplines, particularly hydrology, electrical, civil and structural design, hydro-mechanical and geotechnical design. The company has engineers with specialised tunnel design experience who are able to design for variable and unpredictable geological conditions. The engineers also have experience with a variety of specialised analysis, design and computer aided design software applications. Key concerns Development of projects may be subject to unexpected complexities and delays There are a number of uncertainties inherent in the development and construction of any hydroelectric project, including geological, hydrological and climatic conditions. The uncertainties may result in cost overruns of the projects and also hamper the company’s cash inflow. Projects typically require a long gestation period and substantial capital outlay Due to the nature of the business, hydropower projects typically require a long gestation period and substantial capital outlays before completion or before positive cash flows can be generated. The time and costs required in completing a project may escalate due to many factors. In addition, the failure to complete a project or the failure to complete a project according to its original specifications or schedule may give rise to potential liabilities. As a result, in such projects the returns on investments may be lower than originally expected. Regulated business environment NHPC operates in a highly regulated environment with directives from the government and the CERC. Furthermore, any changes to the CERC’s tariff regulations may adversely affect the cash flow and results of operations. The tariff norms and regulations have been evolving and may be subject to further change. They are subject to revision by the CERC. Valuation NHPC is a premier hydropower utility. The company currently has an installed capacity aggregating to 5,175MW and is looking to be a 20-gigawatt (GW) utility by 2020. NHPC’s projects come with inherited risks (geological, hydrological etc) and require a long gestation period. However, the operating cost of its projects is significantly lower than that of the conventional thermal power stations. In terms of valuations, the issue is priced between 1.7x-2x post-money book value that is at a discount to the listed utilities in the space (for isntance, JP Hydro trades at 3.7x FY2009 book value). This discount is justified on account of the lower return on equity (RoE) of NHPC and the higher risk of delays in the execution of its projects. Importantly, NHPC’s lower RoE is attributable to the higher capital work in progress, which results in lower component of equity which the company earns its returns on. We feel NHPC offers long term value to the investors. Sharekhan 3 August 2009 sharekhan ipo flash Peer comparison Company NTPC Reliance Power Tata Power JP Hydro Power NHPC @ Rs30 NHPC @ Rs36 CMP (Rs) 216.3 170.4 1358.0 83.7 Market Cap (Rs cr) 178349.4 40829.5 30148.8 4107.2 36902.2 44282.7 Book value per share (Rs) 2009 2010E 2011E 69.2 58.7 425.8 22.6 17.7 18.2 75.9 59.0 472.1 82.8 60.6 538.5 2009 3.1 2.9 3.2 3.7 1.7 2.0 Price/Book (x) 2010E 2.8 2.9 2.9 NHPC 2011E 2.6 2.8 2.5 Source: RHP, Bloomberg, Capitaline, Sharekhan Research Note: JP Hydro concensus estimates not available. Financials Profi & Loss account Particulars Net revenues Total expenditure Operating profit Other income EBIDTA Interest & financial charges Depreciation PBT Total tax expense Profit after tax Extra ordinaries PAT after extra ordinaries before minority Interest Minority interest PAT net of minority interest Balance sheet Particulars Sources of funds Equity capital Share capital deposit GOI fund adjustable to equity Reserves & Surplus Net worth Minority interest Secured loan Unsecured loan Total loans Capital grant/proportionate contribution by the Govt. of Madhya Pradesh towards fixed assets Advance against depreciation Total Application of funds Gross block Less: Depreciation Net block Capital WIP Construction stores and advances Investments Current assets Less: Current liabilities and provisions Net current assets Miscellaneous expenditure Total FY2005 9425.6 158.9 333.8 4183.0 14101.3 1006.5 5504.3 3641.8 9146.1 827.3 1000.0 26081.1 14175.6 2312.1 11863.5 9732.4 995.9 2576.8 2385.0 1472.5 912.5 0.0 26081.1 FY2006 10215.3 20.4 325.5 4783.3 15344.5 1130.2 6138.2 3343.2 9481.4 1092.7 1049.5 28098.2 16736.3 2693.6 14042.7 10076.3 837.1 2576.8 2250.8 1709.9 540.9 24.5 28098.2 FY2007 11198.2 0.0 8.8 5502.6 16709.7 1239.9 7562.6 2909.2 10471.8 1109.3 1246.0 30776.6 17037.0 3122.7 13914.3 13270.0 861.7 2320.3 2549.7 2165.2 384.5 25.8 30776.6 FY2008 11182.5 0.0 0.0 6347.7 17530.2 1364.5 9902.7 2952.8 12855.5 1177.9 1318.8 34246.8 27207.9 3682.5 23525.4 6185.8 1077.4 2046.8 4463.9 3052.8 1411.1 0.3 34246.8 FY2009 11182.5 0.0 0.0 7212.4 18394.9 1466.7 10723.5 4207.5 14931.0 1198.0 1424.5 37415.1 28115.1 4408.9 23706.2 9331.7 1097.0 1791.2 5227.4 3740.6 1486.7 2.3 37415.1 FY2005 1947.3 517.1 1430.2 42.1 1472.3 396.8 294.9 780.7 77.2 703.4 0.0 703.4 45.7 657.7 FY2006 2293.9 528.3 1765.6 59.0 1824.6 412.8 344.1 1067.6 75.9 991.7 0.0 991.7 127.1 864.7 FY2007 2503.3 483.4 2020.0 76.6 2096.6 361.5 368.7 1366.4 197.2 1169.2 0.0 1169.2 120.1 1049.1 FY2008 3140.1 635.8 2504.3 181.6 2685.8 637.7 560.7 1487.4 168.5 1318.9 46.1 1365.0 158.0 1207.0 FY2009 3679.0 1089.9 2589.1 372.5 2961.7 776.0 656.3 1529.4 167.8 1361.6 33.3 1394.8 150.7 1244.2 Rs (cr) Rs (cr) Sharekhan 4 August 2009 sharekhan ipo flash NHPC The "views" expressed in this report are our views only and have been arrived at after analysis of the public offering details. This is not a recommendation under our "Stock Idea" category. It may/may not be included in the Stock Idea by our analysts at a later date. Disclaimer This document has been prepared by Sharekhan Ltd. (SHAREKHAN). This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is from publicly available data like public offering. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. 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