Accumulate Nava Bharat Ventures; hold Lanco Infra: Emkay

Nava Bharat Ventures

2Q12 APAT of Rs362mn (down 59% yoy) is below est. on low merchant realizations (Rs3.3/unit vs. Rs3.7/unit expected), lower PLF (82% vs. 87% expected) and lower MAT credit (Rs15mn vs. Rs150mn expected). Contract with TISCO to start from mid 3Q - to provide some hedge for falling power profitability but insufficient. We increase our fuel cost & reduce tariff assumptions – earnings cut of 49%/32% in FY12E/FY13E. Zambia coal trading to start from 4Q12 and to reach 1mnMT in FY14E. 64MW COD still pending - expected in 4Q. Indonesian investment safe, NBVL to get 20% offtake also. Though NBVL is affected by all power sector concerns but is better placed in terms of fuel security (washery rejects and Zambia hedge) and offtake (natural hedge - ferro alloys).

The deal with TISCO will provide some hedge to its power business (in terms of offtake) along with captive consumption for Ferro alloys. Also it has better fuel security with its part dependence on washery rejects vs. coal linkages from coal India. Stock is currently trading at 5.7xFY13E EPS, 0.6xFY13E book. Maintain Accumulate with revised target price of Rs 210/Share

Lanco Infratech

Lanco has reported a consolidated loss of Rs2.6bn – mainly due to (1) Amarkantak reporting marginal loss vs. Rs 1.7bn profit qoq and (2) Rs2.8bn forex loss (griffin, EPC and power). Adjusted consolidated loss, after adjusting for (1) forex losses of Rs2.8bn and (2) exceptional gain of Rs489mn, stoodat Rs205mn vs. expectations of profit of Rs883mn – significantly below mainly due to Amarkantak loss. Further delay in Udupi and Anpara COD (4Q12-1Q13). Cut earnings by 70/31% in FY12E/13E - driven by delays, higher fuel cost and Amarkantak lower tariffs. Issues persist - (1) fuel, (2) Udupi and Anpara delays, (3) perdaman case, (4) inv. planned in solar despite stretched BS, (5) gas plants merchant & (6) int. rates Lanco has corrected significantly due to various issues in recent times – (1) domestic fuel shortage and plants on domestic fuel, (2) Udupi and Anpara Delays, (3) Perdaman case, (4) rising interest rates and stretched balance sheet, (5) huge investments planned in solar despite stretched balance sheet and (6) gas supply issues and gas plants kept merchant. We believe that most of these issues still persist and will take time to get resolved and to remain overhang despite valuations at 0.5xFY12E Book. Maintain hold rating with a revised price target of Rs17/Share (earlier Rs23/Share).

KSK Energy

2Q12 consol loss of Rs 178mn on account of i) higher fixed charges related to Wardha and Arasmeta expansion and ii) subdued revenue booking due to low PLFs. Linkage coal supply (though started for Wardha) issues continued with Arasmeta, Sitapuram also getting affected - avg fuel cost at Rs 2.5/unit, up 64%/8% yoy/qoq. Factoring in- i) higher fuel cost, ii) lower PLFs in most of the projects and iii) 3 month delay in Mahanadi – resulting in significant earnings cut in FY12E/13E. Even though KSK is not an exception to macro headwinds prevailing in power sector, valuations after recent slide are attractive at 0.6xFY12E Book, considering Rs59/Share is the value of operational projects and cash.

We maintain our Hold rating on the back of increasing fuel cost and uncertainty on fuel supplies (Wardha, Mahanadi and even the smaller projects). However, we see limited downside side risk as valuations after recent sharp slide in stock price have come down to very low levels - 0.6xFY12E book. We expect some run up in the stock, considering that the present valuations are only factoring in operational projects (with increased fuel cost and fuel uncertainty factored) and cash in hand. Moreover we believe that value addition from Mahanadi project is yet to be reflected in CMP. We revise our target price to Rs75/Share.

Shares held by Central Governments/State Governments

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