>NEYVELI LIGNITE (ICICI DIRECT)

Longing for new policy implementation...

Neyveli Lignite (NLC) reported a 21.3% topline growth on a like-to-like basis for the reported quarter to Rs 884.3 crore. The results were much below our estimates on the bottomline as the new CERC policy has not yet been implemented and NLC has not adopted the computation through provisional tariff route. This has lead to depressed financials for the
company for Q1FY10. We have also excluded the previous year’s adjustment item (taken for the generation segment) from Q1FY09 for a fair comparison of the numbers. The net profit for the company was marginally up at Rs 287.5 crore as against Rs 285.8 crore in the corresponding quarter last year.

Highlights of the quarter
The power generated by the company for the reported quarter has witnessed a significant growth of 25.4% to 4.9 BU. However, due to the pricing under the old tariff mechanism the company’s revenue growth has been capped at 21.3%. With the new policy implementation taking effect before the end of FY10, the effect is expected to be revised retrospectively or in the active quarter of implementation. So far, there has been no update on the disinvestment front. However, we continue to believe it is an imminent disinvestment candidate in the coming years.

Valuations
At the CMP of Rs 130, the stock is trading fairly at 2.1x and 1.9x its FY10E and FY11E book value, respectively. Better tariff and higher stability of the plants in its portfolio would help NLC grow at a reasonably good pace. We also believe the generation of the first phase (125 MW) of the Barsinger plant will achieve synchronisation over the next quarter. With the positive milieu supported by strong fundamentals, we have revised the target price to Rs 146
with a PERFORMER rating on the stock.

To see full report: NEYVELI LIGNITE