Expect more pressure on power demand if lockdown persists- AK Singh, CMD, NHPC and Rajeev Sharma, CMD, Power Finance Corporation

Update on the Indian Equity Market:
On Thursday, NIFTY closed in green at 9,112 (+4.2%). Top gainers in NIFTY50 were M&M (+17.5%),
Maruti (+13.9%) and Cipla (+13.1%). The top losers were HUL (-3.3%), Dr Reddy’s (-2.2%) and Tech M
(-2.1%). Top sectoral gainers were Auto (+10.5%), Financial services (+5.8%) and Pvt Bank (+5.1%).
There were no sectoral losers.

Excerpts of an interview with Mr AK Singh, CMD of NHPC and Mr Rajeev Sharma, CMD, Power
Finance Corporation (PFC) with CNBC -TV18 dated 9 th April 2020:

• The power ministry is working on a liquidity package for the sector and it has also issued a host of clarifications on relaxations for the distribution companies (DISCOMS).
• After this scheme of 90-days moratorium, they have finalised their scheme for moratorium and the board has approved this and some DISCOMs are paying, some are not but as the situation unfolds, he is expecting the payments, said Mr Sharma (PFC).
• He further added that they have prepared an action plan also for these three months to mobilise funds because they need to make repayments for their borrowings but they don’t see any problem. There is enough liquidity in the market.
• Detailing the liquidity package which the government is pondering over, he added it is under advanced stage of discussion with the ministry of power.
• They are requesting for a robust payment security mechanism as they extend further loans to DISCOMs, they are asking for a state government guarantee along with a provision in their annual budget for their repayments.
• Very soon, this liquidity infusion scheme will be out and REC and PFC will be helping the state DISCOMs to pay the receivables.
• “Just 21-day lockdown is not going to create much problem for us and it is not going to last more also. We are planning to restart the project which is on hold right now. So, I don’t think there is going to be much difference on this account for a company like us,” Mr. Singh added.
• Power demand has declined 25-30 per cent. If the lockdown continues, this will put further pressure on DISCOMs and there will be more stress on balance-sheets.
• As of now, he doesn’t see any problem of liquidity in the market. Enough money is available. Long-term Repo Operations (LTRO) has been declared by Reserve Bank of India (RBI), they are in consultation with State Bank of India (SBI).
• It is cheaper money and banks can lend it over and above their exposure limits. In LTRO, that limit won’t be applied, so they are in consultation with SBI for that and with other banks also for commercial papers and other taxable bonds also, Mr Sharma explained.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of NHPC Ltd was ₹ 22/- as of 9^th April 2020.  It traded at 8x/ 7x/ 7x the consensus earnings estimate of ₹ 2.8/ 2.9 /3.3 for FY20E/21E/22E respectively and the closing price of PFC Ltd was ₹ 90/- as of 9^th April 2020.  It traded at 4x/ 3x/ 3x the consensus earnings estimate of ₹ 24.4/ 29.6 /34.8 for FY20E/21E/22E respectively
• Consensus target price for NHPC Ltd. is ₹ 27/- which implies a PE multiple of 8x on FY22E EPS of ₹ 3.3/- and Consensus target price for PFC Ltd. is ₹ 136/- which implies a PE multiple of 4x on FY22E EPS of ₹ 34.8/-.