NHPC‘s share price has climbed up over 37% since the start of the year, and analysts at Ventura see the trend continuing going forward.

The NHPC Analysts: Analysts at Ventura initiated coverage on the hydropower stock with a “buy” rating and a 24-month price target of ₹176. The target indicates a close to 100% upside from the stock’s current levels.

The NHPC Thesis: Ventura highlights the strong growth potential, driven by increased government support for hydroelectricity and enhanced economics due to the cost-plus Return on Equity (RoE) model. According to the research note, NHPC is India’s only fully “green” public sector power generation company, with a hydropower capacity of 7 GW, which represents 15% of the country’s total hydropower output.

The company is undergoing capital expenditure (capex) to expand its capacity to 12 gigawatts by March 2028, with expectations that its market share will increase to 20%.

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In addition to its focus on hydropower, NHPC is working to expand its solar and wind power generation capacity from the present 173 megawatts to 1.6 gigawatts over the next five years. Ventura anticipates that the commissioning of both hydro and solar projects will enhance NHPC's earnings, with the full impact projected to be seen by FY27-28.

NHPC's hydroelectric plants operate under a regulated model that offers a RoE of 15.5% to 16.5%, which could increase to 16% to 17% for new projects, in line with the draft Central Electricity Regulatory Commission (CERC) Tariff Regulation for FY29.

The report forecasts NHPC's revenue, EBITDA, and net earnings to grow at a compound annual growth rate (CAGR) of 8.8%, 12.0%, and 5.2%, respectively, over FY24-27, with figures expected to reach ₹12,402 crore, ₹6,925 crore, and ₹4,224 crore, respectively.

EBITDA margins are projected to improve by 471 basis points (bps) to 55.8%, although net margins are expected to decline by 357 bps to 34.1%. The company is funding 70% of its new capex through debt, which could lead to higher interest costs and a greater debt burden on its balance sheet. As a result, return ratios—RoE and RoIC—are expected to improve by 4 bps to 9.4% and 9 bps to 5.6% by FY27.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.