The NHPC stock saw muted response in trade post its listing falling below it’s issue price. However, SK Garg, Chairman and Managing Director at NHPC defends the issue price saying the it was justified at Rs 36 per share, adding that offloading by high net individuals (HNI) was perhaps the biggest factor for slippage of the stock. He expects the stock to pick up in the near future. He further said that currently, the company’s return on equity (ROE) was at 17% across its 13 power stations. The installed capacity of the company will be 9500 mega watts by 2013, he said.
Here is a verbatim transcript of the exclusive interview with SK Garg on CNBC-TV18. Also watch the accompanying video.
Q: On hindsight it seems it would have been prudent for you to price that issue at the lower end of the band and not at Rs 36 where you chose to?
A: I don’t think because what has happened is the price which we had earlier decided, was quite reasonable and as I mentioned several times earlier also that it was neither overpriced not under priced. So far the price of our share is concerned — Rs 36 from the upper band — I think this was a right price and we have gone ahead with that. On the day of listing, on the September 1, it opened on a positive note with an 8% rise and went up to Rs 42. After that there was some decline. We have been observing that it’s touching Rs 33-34, it’s hovering around that. But overall, as far as shares are concerned, as things are moving in the corporation itself and more projects are on the threshold of commissioning, we hope our shares will pickup in the foreseeable future. So in totality, I still feel that the pricing we have decided is still reasonable.
Q: That surge didn’t last more than a couple of hours though on listing day and the sense we get is that there is still a lot of sellers in the market for NHPC. Is that what you are hearing as well that on the supply side a lot of those over subscription figures are now getting corrected once the stock has listed, people are looking to exit?
A: It’s quite likely as we have seen that our share has been oversubscribed almost 24 times and that was phenomenal for any premier organisation. The high net worth individuals (HNI) have come back in by almost 56-57 times and it looks like they have been offloading this at initial stage and that is the dent factor. That’s what it appears. Overall, I may not be able to comment about why the prices are coming down. But I have been given to understand that perhaps most of the HNIs have sold heavily. They might be offloading at the initial stage when our shares opened on September 1, 2009, perhaps that could be the factor. But overall we feel that it will get stabilise over the period.
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Q: The general observation from a lot of people who track your stock now is that NHPC should trade at a significant discount to NTPC’s valuations because of your lower return on equity. Can you give us some roadmap on how you expect your return on equity (RoE) to move over the next couple of years and whether they will come close to NTPC?
A: Comparing hydro sector with thermal may not be prudent. Comparing NHPC with NTPC perhaps to my mind may not be correct. Secondly, so far as the RoEs are concerned as I mentioned during my road shows and after appearing in the media also, I have been saying that at present we are earnings around 17% RoE on our all power stations; 13 power stations. It is only the amount which we have blocked almost Rs 7,500 crore in my work in progress. There are around 11 projects which are in construction with the capacity of 4,622 megawatts (MW) where we are not getting any return. Now since we are in the process of commissioning our projects one by one.
In 2009-10 six projects with a capacity of almost 1,200 mw have been planned. Likewise, by 2013, our installed capacity will be something like 9,500 mw as against the existing 5,175 mw. So in totality we are aiming to achieve those targets by 2013. This company will be having a capacity of 9,500 mw and certainly my RoE which at present is around 17% on the power station, will go up to around 19% effective from April 1 2009. Our return on equity is very low, it is 6-7% but we are hoping in the time to come, in the next three-four years when these projects will be commissioned and some of the projects which are under construction, in totality it will improve, we are hoping it will go up to 10%, the RoE including the work in progress.
Q: I believe the company has already suffered a generation loss of close to 200 million units because of the erratic rainfall. Any estimates at this point on what kind of generation loss you might have for the full year?
A: We are fortunate that in the first quarter i.e. April to June, our company has positive signs where we generated more as compared to our target of around 370 million units in Q1 of this year. During July to first week of September, in almost two months and one week, we lost around 200 million units. There is no denial about it because of the low rainfall and the drought conditions, we had suffered. But we are fortunate that in Q1 we had registered a positive generation of 370 million units above our target which has compensated my loss of 200 million units. So as on date if you ask me because of the rainfall which we are now experiencing in the northeast, my generation has started picking up. Incidentally, yesterday itself I have - against the target of 63 million units – generated 73 million units. So this is a positive sign. In totality, yes, till date we lost about 200 million units in the month of July and August and the first week of September but with overall positive in Q1. I am still positive as against the target for which we signed the memorandum of understanding (MoU) with the government of India.
In totality, I am not going to lose anything as far my financial inflows are concerned. As I mentioned to you that till date we are still positive only because of Q1.
Q: You were not agreed to comparisons with National Thermal Power Coporation (NTPC) but we believe NHPC as well is making some geothermal forays. Can you update us on that and whether you have identified projects already?
A: As far NHPC is concerned, there is no mandate from government of India to enter into thermal. We are still concentrating on our core business which is development of hydro being a premier organization. Coming back to thermal development, we have got one joint venture, Narmada Hydroelectric Development Corporation (NHDC) with Madhya Pradesh government where 51% equity is held by NHPC and 49% by Madhya Pradesh State Government. What has happened there is we have already given two power stations to Madhya Pradesh government of 1,000 MW Indrasagar and another 520 MW of Omkareshwar. But we have observed that in Madhya Pradesh there is hardly any hydropotential now left. So we took a decision and requested the government of India to allow us through our subsidiary company NHDC to promote thermal project, 1,320 MW which is in Revapur village in Madhya Pradesh that has been incidentally allotted by state government of Madhya Pradesh and we are thankful to them that they have reposed confidence in developing one good project in district Khandwa of Revapur village. So we are working on it and it is a super critical two units of 660 MW. So we are working on Detailed Project Report (DPR) right now and the process is on and we are hoping this project will come in next four-five years.
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