>NAVABHARAT VENTURES (SPARK CAPITAL)

Navabharat’s 3QFY10 results came largely in line with our expectations, with revenues at Rs. 2,637 mn (8% qoq) and earnings at Rs. 1,322 mn (10% qoq) due to higher PLF and improved ferro alloy price realization. We believe Navabharat remains attractive for a long term and we expect it would continue to generate healthy operating cashflows from its existing 228MW power assets which would in-turn fund their 364MW capex without any equity dilution, importantly with a lesser leverage. We tweak our FY10E estimates marginally upwards due to lower effective tax rates on account of MAT credit.

Strong operating performance; Retain BUY

Takeaways from management call
■ Average PLF was at 88% compared to 82% in Q2FY10. Average realization was at Rs. 5.1/- for outside sale and Rs. 3 per unit for supply to GRIDCO. Prices are contracted for Rs.5 per unit for the next quarter.

■ Expansion work is going ahead as per schedule in Orissa (64MW by Dec’10) and financial closure for 300MW is expected by Feb’10 and order for critical equipments to be placed by Mar’10

■ The 1050 MW plant in Orissa which is being planned in 50:50 JV with malaxmi power is still facing hurdles S Vijayaraghavan +91.44.4344 0022 | raghavan@sparkcapital.in 1 Public 49.0% due to equity contribution from its JV partner. Currently there is no progress on the execution of this plant

■ Average realization of Ferro Chrome and Silico Manganese in 3QFY10 was at around Rs. 50,000/tonne and Rs.54,000/tonne respectively. Realizations came in better sequentially from Rs.43,000/tonne in 2QFY10. Total production is expected to be around 35,000 MT in FY10E and 40,000 MT in FY11E

■ Average realization of sugar in the quarter was at Rs.31/kg and it expects to crush 400,000 tonnes in FY11E with a recovery rate of ~9.5%. Besides it has also imported 4000 tonnes of raw sugar. During this quarter it sold around 5,661 MT of sugar and 23,104 MT in 9MFY10.

■ Coal extraction from Indonesian mine has commenced. However export (trading) of coal has been delayed on account of pending clearances. The first coal shipment is expected by Jun’10 with a production target of 600,000 tonnes in FY11E. The company is in the process of executing PPAs with Zambian government and expects to commence extraction by Sep’10 with a target of 300,000 tonnes for FY11E

Valuation and view
■ We believe Navabharat would continue to generate strong operating cashflows and RoE in excess of 20% due to stable merchant power realization, improving ferro alloy pricing and bumper sugar season. Our 12-month target price of Rs. 475/- is arrived based on average of 2x FY11E book value of Rs.217/- and 12x of FY11E EPS of Rs.43/- which leaves us with a 24% upside.

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