SOTP Valuation. Standalone Quarterly Financials. Feb 3rd, Analyst Pavas Pethia Tel:

Transcription

1 Feb 3rd, 2011 INR Key Data ` CMP (`) 272 Target Price (`) 340 Bloomberg Code Reuters Code NBVL IN NABV.BO BSE Code NSE Code NBVENTURES Face Value (`) 2 Market Cap (` bn) Week High (`)) Week Low (`) 279 Avg. Daily Volume (6m) 78,556 Shareholding % Promoters 45.5 Mutual Funds / Bank/ FI 3.8 Foreign Institutional Investors 22.2 Others 28.5 Total 100 Nava Bharat Ventures Ltd Merchant power rates continue to decline but recovery in sight Nava Bharat Ventures Ltd. (NBVL) has reported subdued performance for 3QFY11 due to lower than expected merchant power realization. The decline was significant as net realization per unit of power declined from ` 4.99 to ` 3.24 on YOY basis. Ferro alloys segment continue to underperform owing to higher fixed cost associated with Ferro chrome unit, which is sitting idle, as current prices doesn t justify the case of restarting production. Sugar segment was affected by unseasoned rainfall and lower yield. We believe that merchant power rates have bottomed out at ` levels and prices are expected to move upwards to ` 4 levels in next couple of months. Cost pressure and higher demand (First half of the year) are going to support prices at these levels. We value Nava Bharat Ventures Ltd at ` 340 based on SOTP method and maintain our Buy recommendation. SOTP Valuation Segment/Operations Methodology Multiple on FY12 EBITDA Per share valuation in ` Power NPV 240 Ferro Alloys EV/EBITDA 6 24 Sugar EV/EBITDA 5 10 Cash 62 International Investments Book Value 4 Total 340 Source: Company, ACMIIL Research Standalone Quarterly Financials Particulars (` mn) 3Q FY11 Source: Company, ACMIIL Research 2Q FY11 Q-o-Q Change 3Q FY10 Y-o-Y Change Net Revenue 2, , % 2, % Less Expenditure 1, , % 1, % PBDIT , % 1, % Less: Depreciation % % PBIT % 1, % Less: Interest % % PBT % 1, % Less: Tax PAT % 1, % Analyst Pavas Pethia research@acm.co.in Tel:

2 KEY HIGHLIGHTS FOR 3Q FY11: Net realization per unit of power declined 18 % QOQ and 35 % YOY to ` 3.24 per unit. Merchant power realization for the quarter was ` 3.35 per unit. Contracts for merchant power sale for next five months signed in the range of ` per unit. Ferro alloy segment continue to underperform on account of fixed cost of ferro chrome unit, which is not operational for quite some time now. Price for Ferro chrome is just at a breakeven level and does not justify restart of operations. Lower yield and unseasoned rainfall resulted in dismal performance of sugar unit. 64 MW power plant in Orissa is awaiting environment clearance is likely to be commissioned at the end of the current fiscal. 26 mn USD of shareholders loan was extended to Zambian operations through Singapore subsidiary for clearing pending liabilities. Mining operations to kick start by April Sale of high-grade coal from Zambia to begin by October Indonesian mining foray has been unsuccessful so far and matter is in court now. Total investment of 5 mn USD was made in the Indonesian project. The company is pursuing options either to recover its investment or to get mining rights. Outlook We believe that merchant power rates have already bottomed out at current ` per kwh levels and are expected to move upwards to ` 4 per kwh in next couple of months. Raw material cost (Thermal coal) pressures and higher demand (First half of the year) are going to support prices at these levels. However Demand management by state utilities coupled with their deteriorating financial condition will cap upward movement beyond ` 4.5 levels. NBVL partial usage of cheaper washery rejects for power generation will provide some cushion to margins in case thermal coal price move up further. Valuation and Recommendation Incremental volume in power on account of upcoming power capacity of 364 MW (1X64 and 2X150) and commencement of mining in Zambia will be next triggers for the company. We believe that NBVL is one of the best bets among small and medium size power players owing to its lower cost of production and relatively cheaper valuation. We value NBVL at ` 340 based on SOTP method and maintain our Buy recommendation. 2

3 Earnings Summary Net Revenue 13, , , ,967.5 Expenditure 7, , , ,194.8 PBDIT 6, , , ,772.8 Depreciation PBIT 5, , , ,268.7 Finance charges PBT 5, , , ,832.1 Tax PAT 5, , , ,276.0 Adj EPS (Diluted) Sources and Application of Funds Source of Funds Share Capital Reserves and Surplus 11, , , ,127.3 Total Shareholders funds 11, , , ,308.2 Minority Interest Total Loan 4, , , ,237.7 Deferred tax liability Total Capital Employed 16, , , ,750.3 Application of funds Gross Block 9, , , ,441.4 Depreciation 2, , , ,393.0 Net Block 7, , , ,048.4 Capital Work-in-progress , , ,099.5 Investments Net Current Assets 9, , , ,627.6 Total Capital Employed 16, , , ,

4 Cash Flows Net cash from operating activities 3, , , ,454.8 Net cash from investing activities -1, , , ,271.0 Net cash from financing activities , , ,763.5 Cash and cash equivalents 1, , , Cash and cash equivalents (previous year) 2, , , ,695.1 Cash and cash equivalents (current year) 4, , , ,642.4 Key Ratios FY09 FY10 FY11E FY12E Profitability Ratios EBITDA MARGIN 46.9% 49.6% 35.2% 32.5% PAT Margin 38.6% 42.2% 27.0% 22.3% RONW 44% 31% 16% 15% ROCE 36% 27% 16% 15% Per Share Ratios (`) Diluted EPS CEPS Book Value per share Valuation Ratios P/E(x) P/BV(x) EV/EBITDA Capital Structure Ratios Debt/Equity Current Ratio Working Capital Ratios Inventory turnover ratios Debtor turnover ratio Creditors turnover ratio Fixed asset turnover

5 Notes Institutional Sales: Ravindra Nath, Tel: Kirti Bagri, Tel: K.Subramanyam, Tel: Institutional Dealing Disclaimer: This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in the report. ACMIIL and/or Promoters of ACMIIL and/or the relatives of promoters and/or employees of ACMIIL may have interest/position, financial or otherwise in the securities mentioned in this report. To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views expressed in the report. This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in and buy and sell securities referred to herein. SEBI Regn No: BSE INB (Cash); INF (F&O), NSE INB (Cash); INF (F&O) 5