NHPC - Stock to buy for long term

The way Coal India IPO has stirred the primary market in Indian stock markets, I got reminded of one more big PSU IPO, NHPC. Everyone seems to have forgotten this company but it should be a stock to buy now as part of your long term stock buying strategy.

NHPC was a PSU stock made lot of buzz in August 2009 when it had hit markets. Soon after listing, it started trading below its IPO price of Rs. 35 The stock trades at only Rs. 31.90 right now. It has paid a dividend of Rs. 0.55 which puts it's dividend yield at 1.7%, not bad.

I searched for any recent news on it and I got a recent recommendation on economictimes.com I am reproducing essential excerpts of it here for the benefit of readers.

With the improvement in its financial performance over the past five quarters, its price-earnings ratio has come down considerably to an attractive level of nearly 18 times. The company commissioned one of its projects recently, which would further add to the bottomline in the coming quarters.

NHPC is the largest hydel power generation company in the country having a capacity of 5,300 megawatt (mw), including a project of 120-mw capacity commissioned in July this year. Two of these projects totaling 1,520-mw of capacity are run through a 51:49 joint venture with NHDC. It has 10 projects with 4,500 mw of capacity under various stages of construction to be completed by the end of the financial year 2013. About 1,200 mw of this is expected to go on steam in the next four quarters. These projects would double the power generation capacity of the company. The increase in revenue and profit would be even higher since the new regulation provides higher returns on equity and higher efficiency parameters for new plants.

FINANCIALS: For the year ended March 2010, the company posted impressive numbers with consolidated sales growing by 49% and net profit by 84%. Profitability was aided by slight reduction in operating and interest cost. However, provision for depreciation nearly doubled with newer capacities coming on stream. However, in the June 2010 quarter, the performance has been subdued with a marginal decline in sales and 7% increase in net profit. But it must be noted that the hydel plants face significant amount of seasonality mostly depending on the rainfall. Hence, its performance should be looked over a longer period rather than on quarterly basis.

OUTLOOK: Even though the stock has failed to attract investors’ attention in the past one year, the medium term prospects of the company are good. In the longer run, the company is expected to behave like other global utility companies, offering steady cash flows and attractive dividends. The company looks comfortably placed to provide attractive returns and investors can consider to buy stocks of NHPC with a time frame of 2-3 years.

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