The Great Fall of NHPC

I’ve recently had a chance to trade into a few stocks, and one of them was NHPC. Unforunately the stock has crashed beyond imagination, hitting my stop loss at 27 and then 25, and then spiralling down all the way to Rs. 18. It’s back at Rs. 20 now, but the swiftness of the move is surprising.

The rumours are that the company may have to transfer projects to the J&K government, but that is supposedly not true, says their director-finance ABL Srivastava. In the interview they have large receivables from Bihar, J&K and Delhi.

Another rumour is that bear operators have tried to hammer the stock, which has a very low non-promoter holding of about 14%.

Of course the other issue is that the government (the promoter of NHPC) will reduce its stake from 86% to 75%.

The stock had an IPO at Rs. 36 per share in 2009 and has never really gotten back to that level. While my entry was technical (strong new 52 week high with volume around the 26 level) the fundamentals of this company are reasonable. With a serious power crunch and with plants in the himalayas both supply and demand are reasonably assured. Yet, the risk is that the government owned entities that buy power won’t pay, and that the power generation could get too expensive.

Their dividend of Rs. 0.6 to 0.7 per share gives about 3.5% dividend yield. If interest rates drop, this will be an attractive stock to be in. However, I would wait for a recovery in the price back to the 26 levels before jumping in – if there are problems, the price will talk first, and then problems will get visible. The price has talked on the downside, so we’ll have to see where this goes.

However, with a thinly traded stock, one could take a chance on the fact that this was just operator movement – but like most bets, the risk of an uneducated guess is as good as a gamble.