ICICIdirect has upgraded 'Buy' on NHPC with target price of Rs 34 as against current market price (CMP) of Rs 27 in its report.

Commenting on the investment rationale, the stock broker said, "NHPC Generation increased 3.4% YoY in Q4FY14 to 2.58 billion units due to incremental capacity of 807 MW added in FY14 over FY13 partially offset by non functioning of 280 MW Dhauliganga plant.

Revenues increased marginally by 2.1% YoY to Rs 11.23 billion as growth in generation was offset by lower tariff realization of Rs 4.4/Kwh vs. Rs 4.7 realized in Q4FY13. However, in Q4FY14 NHPC included a sum of Rs 10 billion as provisions related to administrative and borrowing cost related to its under construction Subanshri and TLDP IV projects, which resulted in EBITDA loss of Rs 2.47 billion and PAT loss of Rs 1.99 billion. NHPC added 807 MW of capacity in FY14, adding Rs 19.85 billion to its regulated equity of Rs 98.49 billion. However FY15E-FY16E is likely to be lull period in terms of capacity addition. 

Factoring in the incremental YoY capacity we expect NHPC to generate higher incentives in FY15E and FY16E from better PLF and PAF. Accordingly, we expect RoE to improve from 5.6% in FY14 to 8.1% in FY15E and 8.2% in FY16E. Also with the construction work at Subanshri likely to begin from H2FY15, we expect CWIP as a percentage of networth to decline to 48% by FY16E."

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