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The Indian public sector hydropower company, NHPC, experienced a significant surge in its share price, climbing over 5 percent on Thursday following a bullish upgrade from the brokerage firm CLSA. This upgrade, to a 'high conviction outperform' rating, represents a significant vote of confidence in NHPC's future prospects, particularly considering CLSA's previous 'outperform' rating. The revised price target of ₹117, while slightly lower than the previous ₹120, still indicates substantial growth potential for investors. CLSA's prediction of a doubling of NHPC's share price within the next four years underscores the firm's optimistic outlook. This projection is particularly compelling given the recent 25 percent decline in the stock price over the past six months, presenting what CLSA views as an attractive buying opportunity. This positive assessment is not solely based on speculation; it's rooted in NHPC's ambitious expansion plans and the anticipated boost to its earnings per share (EPS).
A key driver of CLSA's positive forecast is NHPC's ongoing expansion initiatives. The commissioning of the Parbati 2 Hydro Project has already resulted in a noteworthy 27 percent increase in regulated equity during the first quarter of the fiscal year. This is just the beginning. NHPC is actively pursuing expansion into the shorter-duration regulated pumped storage sector, a move that highlights the company’s strategic vision and commitment to future growth. This venture alone involves a substantial investment of ₹84,000 crore, earmarked for developing a substantial 20 GW of pumped storage capacity. This significant investment underscores NHPC's commitment to enhancing its capacity and strengthening its position within the energy sector. The successful execution of this ambitious plan is expected to translate into substantial growth in the coming years, further solidifying CLSA's positive outlook.
The anticipated doubling of NHPC's regulated equity between fiscal years 2024 and 2028, as projected by CLSA, is a testament to the transformative impact of these expansion projects. The completion of these major projects is expected to propel the company's EPS growth, directly benefiting shareholders. However, it is crucial to acknowledge the volatility NHPC's stock has shown recently. The share price has fallen 37 percent from its peak of ₹118, highlighting the inherent risks associated with investments in the energy sector. While the stock showed a positive 4 percent increase on Monday, reaching ₹77.75, it's also experienced a 5 percent drop in the first two months of the year. This volatility underscores the need for investors to conduct thorough due diligence and carefully consider their risk tolerance before making any investment decisions.
Beyond its expansion plans, NHPC's strategic decisions also contribute to the positive outlook. The company is currently deliberating on its acquisition of shares in PTC India, a major player in the power trading sector. NHPC currently holds approximately 4% equity in PTC India. While other public sector entities may be considering divesting their shares, NHPC chairman and managing director Raj Kumar Chaudhary has stated their intention to maintain their investment. The final decision, whether to increase their stake or merely maintain their current holding, will be communicated to the power ministry shortly. This decision further showcases NHPC’s proactive approach to optimizing its investment portfolio and maximizing shareholder value. The outcome of this decision could further influence investor sentiment and the trajectory of NHPC's share price in the coming months.
In conclusion, the recent surge in NHPC's stock price, driven by CLSA's upgrade and the company's aggressive expansion plans, presents a compelling case for potential investors. The projected doubling of the share price within four years, fueled by the successful completion of major projects, is a significant factor to consider. However, the inherent volatility of the energy sector and the recent stock price fluctuations necessitate a cautious approach. Prospective investors must carefully evaluate their own risk tolerance and conduct thorough research before making any investment decisions. The upcoming decision regarding the acquisition of PTC India shares adds another layer of uncertainty and potential influence on NHPC's future performance. The overall picture paints a dynamic situation with both significant potential and inherent risks that need to be carefully weighed.
Source: NHPC stock rises over 5% after CLSA upgrades to ‘high conviction outperform’; Do you own?