Nava Bharat Ventures- ‘Power’ing ahead: IDFC Sec

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Nava Bharat Ventures
‘Power’ing ahead


Nava Bharat Ventures’ (NBVL) transformation into an IPP from a leading ferro alloy player is well under
way with expansion plans that will boost capacity 2.5x to 601MW by FY13. NBVL has secured coal from
domestic sources and an Indonesian coal mine to fuel the expansion. The company is uniquely positioned
to hedge any merchant power tariff slump by optimizing the power/ ferro alloy mix and revising allocation
of power between merchant and captive sales to ensure profitability. The Maamba (Zambia) project comes
with the assurance of twin revenue streams – sale of high-grade coal and sale of power from a planned
300MW plant using lower quality coal at assured 25% RoE tariffs, which ensures high profitability and
boosts consolidated earnings. We expect a well-funded balance sheet (Rs3bn net cash as at Sept’10) to
support multiple growth avenues of the company without any equity dilution. We expect NBVL’s earnings
to rebound sharply in FY12 (34% yoy), led mainly by start of overseas mining operations. Considering the
sharp rebound in FY12 profits, NBVL’s current valuation of 5.3x FY12E earnings looks very attractive. We
initiate coverage with Outperformer rating and an SOTP-based price target of Rs520/share.




Power capacity set to jump 2.5x: NBVL’s captive power and co-gen/ biomass units, totaling 237MW, currently
sell power at merchant rates as the ferro alloy business (200,000 tpa) is yet to pick up post the economic
slowdown since 2009. With additions of 364MW planned over the next two years, capacity will jump 2.5x to
601MW, thereby boosting power segment contributions led by sale at merchant tariffs.

‘Fueling’ expansion: Apart from linkages, washery rejects and e-auction coal, NBVL has partly secured fuel for
its upcoming power plants by acquiring the rights for a 10mt coal mine in Indonesia. NBVL’s Maamba
(Zambia) coal mine acquisition (65MT) is expected to boost revenues from mining business as well. In
Maamba, the innovative use of overburden (low grade) coal from the mine to run a planned 300MW power
plant with assured 25% RoE tariffs will boost the profitability of the project, as well as consolidated earnings.


Very attractive valuations: With net cash of Rs3bn as at Sept ’10, NBVL appears adequately funded for current
growth plans. We expect earnings to be boosted sharply (34%yoy) in FY12, led by start of overseas mining
operations and additional power generation from 64MW capacity expansion. Considering the attractive
portfolio of assets, strong balance sheet and sharp rebound expected in FY12 profits, NBVL is attractively
valued at 5.3x FY12E earnings. We initiate coverage with Outperformer rating and SOTP target Rs520/share.



INVESTMENT ARGUMENT
􀂾 Transforming into a diversified company with a focus on power from a ferro
alloy player; to increase capacity 2.5x to 601MW from 237MW now by FY13
􀂾 Flexibility to dynamically change proportion of ferro alloy production, and
hence, allocation of power to captive and merchant sales
􀂾 Securing fuel sources abroad to operate new capacities under implementation;
purchased mining rights in Indonesia for the same
􀂾 Won bid for 65MT Maamba Collieries mine in Zambia; to set up a 300MW
power plant using overburden (low grade coal) at tariffs that ensure 25% RoE
􀂾 Management’s focus on profitability evident in acquisition of overseas assets
at attractive terms and strong balance sheet with sufficient cash for growth
􀂾 Risks include volatility in merchant power tariffs and ensuring timely
commissioning of mining operations in Indonesia and Zambia
􀂾 Considering the potential upside from commissioning of mining operations in
FY12 and power projects thereafter, the stock is available at attractive
valuations of 5.3x FY12E earnings; initiating coverage with Outperformer and
an SOTP price target of Rs520/share