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Neyveli Lignite Corp. -Monsoon and Capex delay hit 3Q
„Weak 3Q led by Monsoon and capex delay; Maintain Neutral
Neyveli had weak 3Q11 - Rec PAT fell 11%YoY led by an excessive monsoon
impacting its lignite mines linked power stations. Power generation fell by 3%YoY
despite +5%YoY in capacity on lower PLF 63% (vs 69%). We cut our FY11-12E
EPS by 3-6% to factor in delay in commissioning of 125MW Barsingsar TPS Unit
2 and 500MW Neyveli TPS 2 expansion. We also cut our PO to Rs132 (Rs137)
on EPS/BV cut, de-rating of multiple 1.7x (vs 2x) FY13E P/BV on delay in
catalysts and de-rating of power sector/NTPC. We see the stock moving sideways
on a) lack of near term catalysts and b) expensive valuation 14x FY12E EPS
inline with NTPC for lower EPS growth and 360bps lower RoE vs NTPC.
Weak Generation -3% despite capacity +5%; Cut EPS by 3-6%
Neyveli 3QFY11 sales at Rs8.7bn were flat on weak generation -3%YoY led by
lower PLF of 63% vs 69% despite capacity +5%YoY at 2.6GW. EBITDA Rs1.1bn
+13%YoY while Rec PAT -11%YoY on higher fixed cost – depreciation +32% and
interest +687% on start of 125MW Barsingsar plant. Rep PAT Rs961mn -74%YoY
on high base - adjustment in 3QFY10 of Rs3.9bn 1HFY10 power sales reckoned as
per accounting policy. We cut our FY11-12E EPS by 3-6% to factor in 6-12 months
delay in commissioning / commercialization of 125MW Barsingsar TPS unit 2 – now
in 4QFY11E and 500MW Neyveli TPS 2 expansion – likely by FY12E.
Maintain Neutral rating in absence of near-term triggers
We cut our PO to Rs132 (Rs137) on EPS/BV cut, de-rating of multiple 1.7x (2x)
FY13E P/BV for parent valuation. We see the stock moving sideways on lack of
near term catalysts and expensive valuation of 14x FY12E EPS – inline with NTPC
when its RoE is 360bps lower vs NTPC. Benefits from regulatory policy seem priced
in and potential risks / stock overhang (Govt. divestment) could cap stock returns
here on, in our view. We are yet to value 1000MW JV with TNEB (NTPL) and 7GW
of projects planned by NLC for XII plan (FY13-17E).
Price objective basis & risk
Neyveli Lignite (NEYVF)
We have valued NLC at Rs132 (Rs137) based on 1.7x of FY13E book value,
which is 10% discount to NTPC. Lack of tariff visibility esp. of lignite and capacity
addition beyond FY12, slow earning growth 7% CAGR FY11-13E due to delays in
capacity addition and a relatively expensive valuation of 1.7x FY13E P/BV, which
is 10% discount to NTPC for a 360bps lower RoE are the basis for the Neutral
rating on stock. Upside risk is speedy start of 12th plan project execution.
Downside risks: potential 26% mine tax, uncertain pricing of lignite, delay in
project execution. Macro risks are delay in power reforms & financial health of
state distribution companies / its key customer TNEB.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Neyveli Lignite Corp. -Monsoon and Capex delay hit 3Q
„Weak 3Q led by Monsoon and capex delay; Maintain Neutral
Neyveli had weak 3Q11 - Rec PAT fell 11%YoY led by an excessive monsoon
impacting its lignite mines linked power stations. Power generation fell by 3%YoY
despite +5%YoY in capacity on lower PLF 63% (vs 69%). We cut our FY11-12E
EPS by 3-6% to factor in delay in commissioning of 125MW Barsingsar TPS Unit
2 and 500MW Neyveli TPS 2 expansion. We also cut our PO to Rs132 (Rs137)
on EPS/BV cut, de-rating of multiple 1.7x (vs 2x) FY13E P/BV on delay in
catalysts and de-rating of power sector/NTPC. We see the stock moving sideways
on a) lack of near term catalysts and b) expensive valuation 14x FY12E EPS
inline with NTPC for lower EPS growth and 360bps lower RoE vs NTPC.
Weak Generation -3% despite capacity +5%; Cut EPS by 3-6%
Neyveli 3QFY11 sales at Rs8.7bn were flat on weak generation -3%YoY led by
lower PLF of 63% vs 69% despite capacity +5%YoY at 2.6GW. EBITDA Rs1.1bn
+13%YoY while Rec PAT -11%YoY on higher fixed cost – depreciation +32% and
interest +687% on start of 125MW Barsingsar plant. Rep PAT Rs961mn -74%YoY
on high base - adjustment in 3QFY10 of Rs3.9bn 1HFY10 power sales reckoned as
per accounting policy. We cut our FY11-12E EPS by 3-6% to factor in 6-12 months
delay in commissioning / commercialization of 125MW Barsingsar TPS unit 2 – now
in 4QFY11E and 500MW Neyveli TPS 2 expansion – likely by FY12E.
Maintain Neutral rating in absence of near-term triggers
We cut our PO to Rs132 (Rs137) on EPS/BV cut, de-rating of multiple 1.7x (2x)
FY13E P/BV for parent valuation. We see the stock moving sideways on lack of
near term catalysts and expensive valuation of 14x FY12E EPS – inline with NTPC
when its RoE is 360bps lower vs NTPC. Benefits from regulatory policy seem priced
in and potential risks / stock overhang (Govt. divestment) could cap stock returns
here on, in our view. We are yet to value 1000MW JV with TNEB (NTPL) and 7GW
of projects planned by NLC for XII plan (FY13-17E).
Price objective basis & risk
Neyveli Lignite (NEYVF)
We have valued NLC at Rs132 (Rs137) based on 1.7x of FY13E book value,
which is 10% discount to NTPC. Lack of tariff visibility esp. of lignite and capacity
addition beyond FY12, slow earning growth 7% CAGR FY11-13E due to delays in
capacity addition and a relatively expensive valuation of 1.7x FY13E P/BV, which
is 10% discount to NTPC for a 360bps lower RoE are the basis for the Neutral
rating on stock. Upside risk is speedy start of 12th plan project execution.
Downside risks: potential 26% mine tax, uncertain pricing of lignite, delay in
project execution. Macro risks are delay in power reforms & financial health of
state distribution companies / its key customer TNEB.
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