Investors with a one- to two-year horizon can exit from the stock of hydro power generator NHPC, despite cheap valuations. With a major share of planned capacities to be commissioned only after September 2016, limited revenue growth can be expected in the near term. In fact, commissioning deadlines for several projects have had to be extended in the past on account of local protests, delays in obtaining environmental and other clearances and contractual issues.
SEVERAL CONCERNS NHPC, which has an installed generation capacity of 5,927 MW, has currently projects worth 3,870 MW under construction. Of this, over 3,000 MW capacity is expected to be commissioned only after about three years from now. This includes larger projects, such as the Subansiri Lower Project (2,000 MW) in Assam and the Parbati-II Project (800 MW) in Himachal Pradesh.
Work at the Subansiri Project, which was originally expected to be commissioned by December 2012, has come to a standstill since December 2011 due to local agitations. Likewise, completion of the Parbati-II project has been delayed by several years amid contractual issues.
Consequently, these projects and others are now facing cost over-runs. For instance, cost for the Subansiri Project is expected to almost double by the time it is completed.
Besides, power generation by the company is also exposed to the risk of natural calamities. Following the floods in Uttarakhand in June this year, the 280-MW Dhauliganga plant has become non-functional.
Better Option Investors have the option of tendering their shares in the company’s ongoing buy-back offer which is open till 12 December. But, with the buy-back price of Rs 19.25 a share, not much higher than the current market price of Rs 18, one may be better off selling the shares in the open market, based on individual tax liability.
If you opt for the buy-back, only a part of the shares held — two for every every seven shares held by a reserved category investor and 34 for every 379 shares held by a general category investor, as on 8 November, can be tendered. Those holding not more than 10,928 equity shares (as on November 8, 2013) fall in the reserved category.
Long-term capital gains tax at the rate of 10 per cent (without indexation) and 20 per cent (with indexation) will be applicable on shares (held for over a year) tendered through the buy-back. However, shares sold on the market are exempt from such tax. For shares held for less than a year, capital gains on the tendered shares will be taxable at the applicable slab rate. If sold in the open market, the gains will be taxed at a flat 15 per cent.