Brokerage firm CLSA has assigned an ‘Outperform’ rating to NHPC, projecting that its earnings could nearly double by fiscal year 2030. The positive outlook is driven by a strong pipeline of hydroelectric projects. However, investors should also consider operational challenges, including tariff approval delays and project restoration efforts that have impacted recent financial reports.
What Happened
Global brokerage firm CLSA has initiated coverage on state-run hydroelectric power company NHPC Ltd. The firm has set a price target of Rs 117 per share, which implies a significant potential upside from recent trading levels. This move has drawn attention to the company's long-term growth prospects, as the brokerage expects NHPC’s recurring earnings to nearly triple by the financial year 2030.
The Growth Story
CLSA’s optimism is primarily tied to NHPC’s expanding asset base. The company is in the process of commissioning major hydroelectric projects, two of which are expected to begin operations within the current fiscal year.
In the power sector, when a new project starts generating electricity, it creates what is known as a regulated asset base. This helps the company generate more predictable and consistent revenue. The brokerage anticipates that this expansion will lead to a 25% year-on-year increase in regulated equity, which is a key metric for calculating returns in the utility business. Furthermore, the company is viewed as a beneficiary of the government's focus on the Indus Waters Treaty, which may provide more opportunities for hydroelectric development.
What Q4 FY26 Financials Show
For the quarter ending March 2026, NHPC reported a consolidated net profit of Rs 1,549 crore, representing a 68.5% increase compared to the same period the previous year. Revenue from operations also saw a healthy rise of 20%, reaching Rs 2,816 crore.
However, there are nuances in the profitability metrics. While the top-line revenue grew, the EBITDA (operating profit) remained largely flat at Rs 1,196 crore. This resulted in a contraction of the profit margin to 42.5%, down from 51.3% in the same quarter last year. Investors often look at margin trends to understand how efficiently a company is managing its costs as it scales up operations.
Risks and Operational Challenges
While the brokerage sees strong potential, the company faces real-world operational hurdles. CLSA pointed out that reported profits have been held back by two main factors: delays in receiving tariff approvals for the Parbati-II project and the costs associated with restoration work at the Teesta project.
Additionally, the brokerage described NHPC’s accounting policy as "conservative." In simple terms, this means the company may be reporting earnings in a way that is cautious, potentially masking the true underlying earning power of the business. While a conservative approach is often seen as a sign of financial safety, it can make it difficult for investors to gauge the immediate growth trajectory based solely on reported net profit.
What Investors Should Track Next
The next steps for NHPC involve both project execution and regulatory clarity. Investors should track the timeline for the commissioning of the new hydroelectric plants scheduled for FY26, as any delay could push back revenue expectations. Furthermore, updates on tariff approvals for the Parbati-II project and the progress of the restoration work at the Teesta site will be critical for understanding future margin improvements. Finally, monitoring how the company balances its dividends—following the recent final dividend of Rs 0.21 per share—alongside its heavy capital spending will be important.