NHPC’s ₹2,000 Crore NCD Issuance: Strategic Move for Hydropower Growth Amid Mixed Financials

NHPC Limited, India’s leading state-owned hydropower developer, has taken a significant capital-raising step with its proposed issuance of ₹2,000 crore (approximately INR19.4 billion) in unsecured, taxable, non-convertible debentures (NCDs). The bonds, approved by the company’s board on April 23, 2025, aim to fund ongoing hydropower projects, debt restructuring, and capital expenditures. This move underscores NHPC’s commitment to India’s renewable energy ambitions while navigating mixed financial performance.

Bond Structure and Purpose

The NCDs are structured as unsecured, non-cumulative, and non-convertible instruments, targeting institutional and high-net-worth investors via a private placement. Unlike secured debt, these bonds lack collateral, placing them behind secured obligations in the capital structure. However, NHPC’s state-owned status and stable cash flows from its hydropower portfolio may mitigate this risk.

The proceeds will primarily support three strategic areas:
1. Hydropower Projects: Aligning with India’s target of 500 GW renewable energy by 2030, where hydropower accounts for 12% of installed capacity.
2. Debt Restructuring: To manage its debt-to-equity ratio of 0.5x (as of September 2024), a manageable level for a utility with predictable cash flows.
3. Capital Expenditures: To expand operations and maintain its position as a leader in India’s hydro sector.

Financial Performance Context

While NHPC’s Q3 FY2025 results showed a 52.5% year-on-year decline in net profit to ₹231 crore, the company reported strong operational resilience:
- Revenue rose 11.3% YoY to ₹2,286.8 crore, driven by higher power generation and tariffs.
- EBITDA surged 35.8% YoY to ₹1,021.5 crore, with margins expanding to 44.7%, reflecting cost discipline and efficiency gains.

Despite the net profit dip, NHPC’s shares have risen 24% year-to-date, signaling investor confidence in its long-term growth potential.

Key Risks and Considerations

1. Unsecured Debt Risk: The lack of collateral may deter conservative investors, though NHPC’s creditworthiness as a state-owned enterprise could offset this.
2. Interest Rate Sensitivity: As taxable bonds, investors will scrutinize coupon rates post-issue. A high interest rate could strain earnings.
3. Project Execution: Hydropower projects often face delays due to regulatory hurdles and environmental challenges, potentially impacting cash flow.

Market and Regulatory Landscape

NHPC operates in a sector critical to India’s renewable energy goals. The government’s push for hydropower expansion, coupled with tax incentives for clean energy, supports the company’s strategic priorities. However, competition from cheaper solar and wind energy could pressure margins over time.

Analyst and Investor Sentiment

Analysts have maintained a “Hold” rating on NHPC, with an average target price of ₹97 (11% upside from April 2025 levels). While the bond issuance avoids equity dilution, investors will watch for:
- Final terms of the NCDs, including interest rates and maturity profiles.
- Allocation of proceeds, to ensure funds are directed toward high-return projects.

Conclusion

NHPC’s ₹2,000 crore NCD issuance is a strategic response to its growth ambitions in hydropower and debt management. With EBITDA surging 35.8% YoY and a manageable debt-to-equity ratio, the company is well-positioned to capitalize on India’s renewable energy push. However, risks such as unsecured debt exposure and project execution uncertainties remain.

Investors should closely monitor the finalized bond terms post-April 23, 2025, particularly the coupon rate and maturity schedule, to assess capital costs. Given NHPC’s role in a government-backed sector and its operational resilience (evidenced by a 44.7% EBITDA margin), the bonds could attract investors seeking stable, long-term yields. With shares up 24% year-to-date and a market cap of ₹87,000 crore, NHPC’s move aligns with its vision to become a cornerstone of India’s clean energy transition.

In summary, NHPC’s NCD issuance is a prudent step that balances growth and financial discipline, positioning the company to leverage its strengths in a sector critical to India’s energy future.