Navabhart to exit Indonesia coal mine - impact of INR 10/sh on SOTP: Edelweiss

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NAVABHARAT VENTURES
Navabhart to exit Indonesia coal mine - impact of INR 10/sh on SOTP


In a media article today the management of Nava Bharat Ventures (NBV) have
indicated that they would exit coal mining operations in Indonesia due to delays in
various approvals. While net financial impact is estimated at INR 10/share (detailed
below), the risks associated with fuel linkage for a proposed power project in India has
marginally increased (as they have tied up supplies with a coal trader for only 10
years). Our revised SOTP stands at INR 511/sh. We maintain ‘BUY’ on the stock.


􀂄 Our view
The Indonesian coal mines contributed only INR 12/share to our valuation (2% of
SOTP) and INR 250 mn in FY 13 earnings (~4% of projected earnings). The
greater risk of fuel supply for proposed power project is mitigated by long term
supply contracts with coal traders at prices capped at ~ USD 60/tonne (CIF). In
addition the proposed capex of USD 15 mn in coal mines would not be required
and the USD 4mn already invested is recoverable through lien on assets.
􀂄 Impact analysis
On equity invested- USD 4 mn recoverable
NBVL has so far invested USD 4 mn in the Indonesian coal mining assets, which
are pending environmental clearance barring further progress. The amount
invested comes with a lien on the partners assets in Singapore and are hence
recoverable in case of a decision to exit.
On fuel supply for power plant – Alternate arrangements
NBVL has tied up fuel for its AP power plant, through long term fuel supply
agreements (10 year) with coal traders, with pricing having a cap of ~USD
60/tonne CIF. Thus there is No impact on the Power plant’s fuel supply / costing.
On profit estimates – Down 4% in FY13
The impact on earnings is minimal since the coal trading margins contributed only
INR 250 mn to our FY13 estimates i.e. 4%.
On cash flows – USD 15 mn savings
We had estimated USD 15 mn as additional investment in Indonesia which will
now get saved. The USD 4 mn already invested is also recoverable from lien on
the partners assets in Singapore, in case of an exit.
On SOTP valuation – Down by INR 10/sh
The Indonesian assets we valued at INR 12/ share. With the USD 4 mn already
invested being recoverable, the net impact stands at INR 10/sh. Our revised SOTP
is thus now INR 511/sh.