Nava Bharat Ventures - Q3FY13 Result Update - SPA Securities

Nava Bharat Ventures reported good set of numbers inline with our estimates, on the back of robust performance from the power segment aided by sharp improvement in realisations & healthy improvement in volumes. Cost of generation too remained largely flat declining by 1.4% to INR 3.0/unit. While the topline grew by 13.8% to INR 2657 mn, profitability grew at a faster pace by 1.8x to INR 572 mn aided by sharp improvement in merchant power rates in AP. Firm merchant power rates & scheduled commissioning of 214 MW power plants will enable the NBVL to maintain its growth momentum. We retain our BUY rating on the stock with a target of INR 275.

Power Segment

Revenue from power segment increased by 44.8% to INR 1641 mn (accounting for 52% of total revenue) led by 15.2% growth in volumes to 363 MU and 25.6% surge in realisations to INR 4.5/unit. Orissa plant operated at lower PLF of 57% primarily due to planned maintenance outages for almost two months. Sharp improvement in realisations was due to 34.3% surge in captive realisations to INR 4.6/unit and ~30% increase in merchant power rates to INR 6/unit in southern region. Realisations (ex-inter segment) stood at INR 4.5/unit. PBIT improved by 3.2x to INR 543 mn due to increased realisations & volumes and ~1.4% decline in cost of generation to INR 3.0/unit.

Ferro alloys segment - Subdued performance

Ferro Alloys segment registered subdued performance despite Ferro Chrome conversion contract with Tata Steel largely due to decline in production of Silico Manganese owing to diversion of power for merchant sell in AP unit. Overall revenues declined by 20.2% QoQ to INR 1151 mn, while PBIT improved by 9.3% to INR 97 mn. The company has sold 16190 mt of ferrochrome in Q3FY13 (+9.3% QoQ) under the conversion arrangement. Average conversion price is around INR 27000/ton which includes power supply from Orissa plants at INR 4.8/unit. The company is expected to earn a fixed margin of INR 1000/tn earned from contract with Tata Steel.

Expansion plans

Domestic operations

64 MW power plant in Orissa is ready for commissioning and management is waiting to sign the MOU with Orissa government (expected to be done by next month). The construction of the 150 MW Paloncha plant is going as per schedule and will commence operations by Q4FY13.

International operations

The 300-MW mine mouth thermal plant in Zambia has secured most clearances and construction activity is going on full stream. The plant is all set to start operations by FY15. Coal extraction has commenced and ~25,000 tonnes per month & ~50,000 tonnes per month of this high-grade coal are expected to be sold in next two years respectively.

Merchant power rates to remain strong

Merchant power rates are expected to be firm for the next couple of years due to worsening power scenario coupled with forthcoming election in 2014. The prices have significantly surged by ~30% in the southern region to ~INR 6/unit driven by continuing power deficit (increased from 11% to 17% YoY). Currently NBVL is selling power from its AP plant to APDISCOMs at a tariff of +INR 5/unit.

Earnings grew by 75.9%

NBVL witnessed an improvement of 45.2% YoY in EBITDA to INR 839 mn in Q3FY13 on the back of improved profitability from the power segment. Decline in interest expenses and flat depreciation expenses resulted in 75.9% increase in net profit to INR 572 mn.

Outlook & Valuation

NBVL continues to remain an ideal play on Indian Power Sector. Massive capacity additions lined up in power segment, stable merchant rates outlook coupled with commencement of selling of high grade coal from Zambian mines will hold the company ingood stead. At the CMP of INR 186, the stock trades at a P/E of 5.3x, P/BV of 0.6x and EV/EBIDTA of 4.5x its FY14E earnings. We retain our BUY rating and target of INR 275 on the stock.

Source : Equity Bulls

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