Buy Nava Bharat Ventures; target of Rs 389: Sushil Finance

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Buy Nava Bharat Ventures; target of Rs 389: Sushil Finance

Sushil Finance is bullish on Nava Bharat Ventures and has recommended buy rating on the stock with a target of Rs 389 in its February 4, 2011 research report.

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Sushil Finance is bullish on Nava Bharat Ventures and has recommended buy rating on the stock with a target of Rs 389 in its February 4, 2011 research report.

"Nava Bharat Ventures (NBVL) results for Q3FY11 have been below our expectations. However, these were on the back of lower volumes as well as substantially lower realizations, given the extended monsoons & unscheduled outage as reasoned above. Going forward, the management expects the scenario to improve from Q4FY11 & FY12. Despite of improved outlook given by the management, considering the finances of some of the state utilities, we remain cautious on the merchant power rates and have estimated realizations of only Rs 3.8 per unit for FY12. As a result, we have reduced our FY11 & FY12 EPS estimates to Rs 31 and Rs 33 respectively."

"During Q3FY11, NBVL posted net sales of Rs 2,466.3 million, registering a de-growth of 6.5% YoY, on back of lower realization of Rs 3.4 against Rs 4.9. and lower volume on account of unscheduled outage for part of the generation. Principal reasons for this decline in realizations could be attributed to cascading effect of prolonged monsoon and active demand management of state utilities. However, NBVL's EBITDA declined by 61.6% YoY to Rs 568.5 million and EBITDA margins declined from 56.2% in Q3FY10 to 23.1% in Q3FY11, mainly due to lower realizations of merchant power, as explained earlier, higher cost of fuel (higher coal purchased from eauction) and also due to fixed costs incurred on ferro chrome production which has stopped production since Aug 2010. NBVL's interest cost decreased by 45.3% YoY to Rs 38.1 million (NBVL repaid part of the debt) and depreciation remained flat at Rs 110.8 million. It's PBT (including other income) declined by 63.6% YoY to Rs 500 million. NBVL has claimed a MAT credit of Rs 84.5 million resulting in profit of Rs 493.5 million, registering a decline of 62.7% YoY."

"64 MW power is almost ready for commencing but awaiting some small regulatory approvals. Management expects it to commission in FY12. We no longer consider the Indonesian mines into our estimates as the Company has maintained that they are in discussion with its partner and would either ask for a reimbursement of USD 5 million that they have invested in the mines or get a right in the mine. The mining in Zambia is now expected to start from FY12 onwards with 300,000 MT mining of high grade coal in FY12 and 1 million tonne of coal sale in FY13. Also new coal handling and processing plant should start by Sep 2011 and coal trading to start by Oct 2011. 70% of coal sourcing for Orissa plant is currently done through coal linkages, 10% through e-auction and 20% through washery rejects. For AP power plants 80% is through coal linkage, 10% through e-auction and 10% through washery rejects. For 60MW and 150 MW (out of 300 MW) 70-80% would be through washery rejects and 20-30% through e-auction and coal linkages."

"Going forward, with the commissioning of its 64 MW Orissa plant, despite of lower realization, we expect NBVL's PBT to grow by 7.6% in FY12. Also, considering NBVL's strong balance sheet, very low leverage, High Net Cash, use of washery rejects as fuel and upside from Zambian operations (which would generate relatively higher returns upon commercial operations of its power plant), we maintain a BUY rating on the stock with a revised target price of Rs 389 (based on 1.5x its FY12E BVPS of Rs 259)," says Sushil Finance research report.

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