Friday, February 10, 2012

>NAVA BHARAT VENTURES LIMITED: Continues to remains an ideal play on Indian Power Sector

NBVL came out with lower than expected set of numbers due to lower power generation on the back of forced and planned maintenance outage of its power plant. However, this adverse impact on Power business was neutralized to some extent by improved contribution from Ferro Alloys & Sugar segment, leading to YoY decline of 34% in net profit to INR 325 mn
(+33% QoQ). Improving merchant power rates & scheduled commissioning of 214 MW power plant will lead to improved contribution from power segment. We maintain a BUY rating on the stock with a target price of INR 298.

■ Higher fuel cost & maintenance shutdown - dents profitability
Revenues declined by 5% YoY to INR 2336 mn (-10% QoQ) led by 11% decline in power division's revenue to 1134 mn (accounting for 41% of total revenue), on the back of 19% decline in volumes to 315 MU. Power segment's operation was impacted due to the forced and planned maintenance outage (for 45 days at its Orissa unit) resulting in reduced generation (a YoY decline of 75 MU).

Despite 11% surge in merchant power realisations to INR 3.73/ unit (+13% QoQ), PBIT of power segment declined by 64% YoY to INR 167 mn due to increased cost of fuel.

■ Improved performance from Ferro Alloys segment
Ferro Alloys segment registered 8% YoY increase in revenues to INR 1301 mn led by 40% surge in volumes to 27882 tn. Volume growth was driven by 26% increase in Silico Manganese volumes & over 3x surge in ferro chrome sales due to commencement of Ferro Chrome conversion contract with Tata Steel. PBIT increased by ~25x YoY to INR 197 mn (+6% QoQ) aided by 1449 bps improvement in margins. This was on the back of better margins from sale of silico-manganese alloys & fixed margin of INR 1000/tn earned from contract with Tata Steel.

■ Merchant power rates on the boil
NBVL expects merchant rates to remain firm at-least for next 4-6 quarters due to low capacity additions and unavailability of fuel, resulting in continuing power deficit. It has already contracted its merchant capacity at an average rate of INR 4.5/unit for the period Jan 12-May 12. The company realized ~INR 3.8/unit as blended merchant power rates in 9MFY12. We expect NBVL's blended merchant power realisations to improve to INR 3.9/kwh and INR 4.1/kwh in FY12 and FY13 respectively.

■ Expansion plans on track
Domestic operations: NBVL has secured approval from the Ministry of Environment and Forests for its 64 MW power plant in Orissa and is all set to commence operations by Q4FY12. The construction of the 150 MW Paloncha plant is ahead of schedule and is on track for commissioning by Q4FY13. 

 International operations: Coal extraction has commenced in
Q3FY12 and subsequent sale of high grade coal is expected to commence from April 2012 onwards. The 300-MW mine mouth thermal plant in Zambia has secured most clearances, and
principal contracts are under finalisation. The plant is all set to start operations by FY15.

■ Outlook & Valuation
Nava Bharat Ventures continues to remains an ideal play on Indian Power Sector. Massive capacity additions lined up in power segment will hold the company in good stead.
At the CMP of INR 184, the stock trades at a P/E, P/BV and EV/EBIDTA of 7.1x, 0.7x and 4.6x respectively its FY13E earnings. Subsequent to dismal performance registered by NBVL, we have reduced FY13E EPS estimates from INR 27.7 to INR 25.9. We maintain our BUY rating on the stock and with SOTP based target price of INR 298.

To read full report: NB VENTURES