Nava Bharat Ventures Ltd. Start of natural hedge play ACCUMULATE: Emkay

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Nava Bharat Ventures Ltd.

Start of natural hedge play

ACCUMULATE

CMP: Rs 234                                       Target Price: Rs 290

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n     Q411 APAT of Rs651mn (down 41% yoy) is marginally ahead of estimates. Highlights - merchant tariff Rs4.2/unit, PLF 91%, cost of gen. up by Rs0.3/unit (MCL supplies & captive plants)

n     Seeking to enter into a contract with TISCO for ferro Chrome – to produce 35000MT in FY12E (30MW power requirement). No clarity as yet, we assume profit at power trade off level

n     Assume (1) higher fuel cost of Rs2.4/unit vs Rs2.2/unit, (2) 0.15mn/0.60mn MT of Zambian coal trading in FY12E/13E & (3) MAT credit in FY13E.  Cut FY12E/13E earnings by 17%/2%

n     Natural hedge play starts with likely TISCO deal. Maintain Accumulate on relatively cheap valuations (Implied LT merchant tariff of Rs3.1/unit), natural hedge, fuel security with use of washery rejects; Lower PT to Rs290/Share