Neyveli Lignite

Neyveli Lignite

HDFC Bank, JSW Steel, Spice Jet, Neyveli Lignite, Tata Chemicals

HDFC Bank, JSW Steel, Spice Jet, Neyveli Lignite, Tata Chemicals

Neyveli Lignite

We recommend a buy in the stock of Neyveli Lignite Corporation from a short-term perspective. After recording a 52-week high at Rs 177 on January 19, the stock was on a medium-term downtrend until it found support around Rs 140 in late May. The level Rs 140 is a significant long-term support for the stock. Subsequently, the stock bounced up and has been on a short-term uptrend. Moreover, the stock appears to have resumed its long-term uptrend that has been in place since its October 2008 low of Rs 44.5. The stock decisively breached through its moving average compression around Rs 147 in early June. It is trading well above its 21 and 50-day moving averages. The stock's 2.5 per cent jump with above average volume on July 1 has reinforced the short-term bullish momentum. The daily relative strength index is featuring in the bullish zone and weekly RSI is heading towards this zone in the neutral region. The weekly price rate of change indicator has entered the positive territory implying that buying interest has resumed. Our short-term outlook on the stock is positive. We expect it to move up until it hits our price target of Rs 166 or Rs 170 in the approaching sessions. Short-term traders can buy the stock with stop-loss at Rs 154.

via BL

Neyveli Lignite Ltd

Neyveli Lignite Ltd

Neyveli Lignite

Neyveli Lignite

Neyveli Lignite

Investors can consider booking partial profits in the Neyveli Lignite Corporation stock as valuations have run ahead of fundamentals, driven by divestment hopes.

At the current market price of Rs 153, the stock trades at 24 times its estimated FY-10 earnings. This is at a premium to NTPC’s earnings multiple of 20 times despite having lower capacity (2,490 MW) and return ratios.

Neyveli Lignite, a mini-ratna PSU, is an integrated lignite mining and power generation company. Neyveli plans to add around 750 MW by 2010, with the next tranche of capacity-addition coming up only after 2012. This may partly limit its ability to take advantage of the near-term power deficit scenario and recent Central Electricity Regulatory Commission (CERC) norms. The gradual phase-out of the Neyveli Thermal Power Station (TPS)-1 600 MW plant with the commissioning of new capacity also suggests that revenues may not witness strong growth over the next three years.

Execution delays on projects being commissioned also cannot be ruled out, given that the company has faced such delays in the past.
Strong business

The company’s key advantages are its strong balance-sheet with more than Rs 5,400 crore of cash and cash equivalents, a debt-equity ratio of just 0.43 and scope for improvement in the overall return on equity (ROE), thanks to favourable CERC norms. Neyveli Lignite has captive mines which not only eliminate fuel risk but also enable it to earn margins higher than peers, given that the company is allowed to retain some of the margins on mining of fuel. Neyveli’s ROE may also improve as it deploys excess cash in expansion projects instead of conservative investments.
Business

The company currently operates 24 million tonnes per annum (MTPA) of lignite mining facility, the output of which is used as a feedstock for generating 2490 MW capacity at Neyveli, Tamil Nadu. Neyveli Lignite is in the final stages of commissioning a 250 (125x2) MW Barsingsar Thermal project at Rajasthan and 500 (250x2) MW TPS-II extension projects; it plans to develop captive lignite mines for these projects. While the Barsingsar TPS and Neyveli TPS-II extension are expected to be fully commissioned by January 2010 and November 2010 respectively, there is no news yet on the Barsingsar’s first unit that was to be commissioned by October 2009, as per the revised schedule.

Bulk of the company’s projects, however, is set to be commissioned during the 12th Plan (2012-17). The company has a portfolio of more than 10,000 MW of power projects on the anvil for the next Plan period — including Jayamkondan 1600 MW, 1000 MW Tuticorin JV, 2000 MW Orissa project, Neyveli TPS-II extension and Neyveli TPS III.
Finance

The company’s net profits have not shown a secular trend over the last five years due to blips in operating income linked to monsoon-related disruptions and a spike in employee costs after the pay revisions last year. Profits have been impacted partly by a lag between the actual incurring of costs and their eventual payment of the revised tariff by electricity boards, based on CERC norms. For the first half of this year, while sales grew by 26 per cent (excluding the revenues arising out of adjustments related to previous years), net profit rose by 12 per cent, impacted by employee pay revisions. The profits may improve as the benefits of the CERC’s new tariff (2009-14) order start flowing.

According to CRISIL, the rise allowed on ROE may increase the tariffs by 6-8 per cent for a Central power project, thereby improving the company’s topline.

The new CERC norms also allow the company to charge higher operation and maintenance expenses, which can help it pass on employee pay revisions.

Bulk of the profits earned by Neyveli Lignite comes from lignite mining, which is supplied based on transfer pricing to its power business. The margins built into the captive mining business have enabled the company to earn steady returns. However, as the company diversifies from captive sources to seek coal linkages externally, this may put pressure on margins.
Risks and concerns

The company’s topline growth over the next fiscal will come from the 750 MW capacity-addition and favourable CERC norms. However, over the following two fiscal years, revenue drivers appear limited.

With power projects moving to competitive bidding, Neyveli Lignite may enjoy a cost advantage due to its captive fuel. However, operation and maintenance (O&M) costs and interest may have to be borne by the company, partly offsetting these benefits.

The company is also diversifying into wind projects by setting up a 50 MW project, whose capacity may be increased to 200 MW. Land acquisition delays for expansion of lignite mines are also a major hurdle for the company which wants to increase its mining capacity at Neyveli Mine-II from 10.5 to 15 MTPA.

The current quarter may see some disruption in mining activity due to its open cast mines, exposing it to monsoon, which may, in turn, disrupt power generation. PLF at plants especially from TPS-I extension and TPS-II may improve post-monsoon. However, large improvements may not be possible as these plants are operating at their lifetime high PLFs.

The current disinvestment expected in Neyveli Lignite may be a “offer for sale by the government” given the company’s comfortable liquidity position.

As the Neyveli Lignite stock’s valuations are stretched, follow-on public offer (FPO) offer price may be pegged at a discount to the current market price, paring the gains.

via BL

Neyveli Lignite

Neyveli Lignite

Today's Pick - Neyveli Lignite

We recommend a buy in Neyveli Lignite Corporation from a short-term perspective. From the charts of Neyveli Lignite Corporation, we see that the stock was on a medium-term downtrend for almost a quarter (from its early January 2008 high of Rs 273 to its late March low of Rs 101). However, during late March the stock found support at around key psychological level of Rs 100 and began to move up slowly. Thereafter, the stock breached the medium-term down trendline and 21-day moving average. On April 16, the stock surged 4 per cent breaching 50-day moving average. We note that there is an increase in volume over the past five trading sessions. The daily Relative Strength Index (RSI) is on the brink of entering the bullish zone from the neutral region. The weekly RSI took support at 40 levels and it is rising in neutral region. The moving average convergence and divergence is likely to enter the positive territory. Our short-term outlook for the stock is bullish. We expect the stock’s current up-move to prolong to our price target of Rs 159 in the short term. Investor with short-term perspective can buy the stock while keeping the stop-loss at Rs 130.

Ceat, ABB, Neyveli Lignite, Unitech

ABB
Research: Merrill Lynch
Rating: Buy
CMP: Rs 1,103

Merrill lynch has maintained a ‘buy’ rating on ABB. The company has stated that its strategy of expanding products, capacities and markets should continue to deliver strong growth, despite volatile commodity markets. The management has said that India’s plan to add 78 gigawatts (gw) of new generation capacity, related investment in transmission and distribution (T&D) and industrial capital expenditure (capex), especially in the metals & mining and infrastructure space, are picking up. ABB’s order book, at Rs 5,000 crore — up 49% year-on-year (YoY) — support its growth strategy.

The company has won key orders such as robotics from Tata Motors, Karnataka Power Transmission Corporation’s (KPTCL) supervisory control and data acquisition (SCADA) order and transformer/traction motor order from Bombardier for the Delhi Metro. ABB is spending $100 million over ’08-09 on capex (factories) and launching new products — wind generators for exports. The structural drivers of ABB are India’s plans to expand its national power transmission grid, with inter-regional grid capacity of ~37.2 gw (14.1 gw in FY07) and industrial capex focused on higher automation.

The adoption of ultra high voltage direct current (HVDC) lines by FY09E is a significant opportunity for a world leader like ABB. Further, the downstream opportunity lies in medium voltage and engaging in cross-selling across businesses to focused verticals such as metal, water and special economic zone (SEZ), which comprise around 10% of its sales.

Neyveli Lignite
Research: Indiabulls Financials
Rating: Hold
CMP: Rs 110

Indiabulls has reiterated its ‘hold’ rating on Neyveli Lignite Corporation (NLC). However, any decline in the share price from the current level will be a good buying opportunity. As on March 14, ’08, NLC inked a memorandum of understanding (MoU) with Northern Coalfields to set up a 1,000-mw pit-head power station worth Rs 5,200 crore at Gorbi mines in the Singrauli coal fields. Moving ahead with regard to its capacity expansion plans, NLC is also holding talks with Mahanadi Coalfields (MCL) to set up a 2,000-mw pit-head power unit at Vasundhara mines in the IB Valley coalfields.

With the increased energy deficit in NCL’s customer states, demand risks for the company are minimal. Moreover, NCL draws sustainable competitive advantage from its competitive capital cost, low variable cost of generation, and easily available lignite. However, lignite being a low-grade coal suffers from the disadvantage of lower plant load factor (PLF), thus resulting in reduced generation. To overcome these disadvantages and to improve PLF, the company is foraying into coal-based power plants, with the first one in Tuticorin of 1,000 mw, expected to be commissioned by FY10-12.


Unitech
Research: CLSA
Rating: Outperform
CMP: Rs 267

Unitech’s plans to raise $1bn+ have been delayed due to adverse market conditions. Hence, CLSA has cut the company’s FY10 consolidated volume estimates by 15% as Unitech will have moderate growth plans. A potential private equity for Mumbai business expansion can be a positive trigger in the near term.

Taking into account the potential demand-supply issues and aggressive pricing strategy adopted by certain industry players, CLSA has reduced base residential price assumptions by 5-10% and has assumed a 10% correction in office/retail rentals over FY08-FY10. In the residential segment, 79% of projects are valued at Rs 3,000/square foot or less. CLSA has also raised the cap rate assumptions by 100-200 bps, driven by the rise in Singapore real estate investment trust (REIT) yields. With this, CLSA has set a 9% cap rate for office and 10% for retail.

Based on the above changes in assumptions and cap rate, Unitech’s forward net asset value (NAV) comes off by 15% to Rs 365/share. Sensitivity analysis shows that if rentals and price assumptions are lowered by another 10%, the NAV will come down to Rs 304/share — 10% higher than the current stock price.

Opto Circuits India
Research: Networth Stock Broking
Rating: Buy
CMP: Rs 326

Networth Stock Broking has recommended a ‘buy’ rating on the stock with one-year price target of Rs 429 — an appreciation of 30% from the current level. Opto Circuits operates in a niche area of manufacturing healthcare equipment in India.

It is engaged in the design, development, manufacturing, marketing and distribution of medical electronic devices and monitoring products that employ sensing and detection techniques. Its product portfolio comprises sensors, probes, pulse oxymeters, patient monitoring systems and digital thermometers.

Following the acquisition of Eurocor in FY06, Opto has successfully launched its bare-metal and drug eluding stents with focus on the Asian and European markets. It recently launched Dior, a unique drug eluding catheter, which can be used in the treatment of coronary in-stent restenosis and small diameter coronary artery lesions.

Eurocor is the only company in the world to have obtained a CE certification for its drug eluting balloon catheters. Opto’s net sales and profits are expected to witness a compound annual growth rate (CAGR) of 42% and 41% from FY08E to FY10E. At the current market price of Rs 330, the stock trades at 23.6x and 16.9x its FY08E and FY09E diluted earnings, respectively.


Ceat
Research: Edelweiss
Rating: Buy
CMP: Rs 97

Edelweiss maintains a ‘buy’ recommendation on Ceat. The company sold 6.92 acres of the 31-acre land at its Bhandup plant for Rs 130 crore, valuing the property at Rs ~18.8 crore/acre. Of the total consideration, Rs 120 crore will be received by the company in Q4 FY08E and the balance in FY09E. The current sale will not impact the company’s production.

Over the next 24-30 months, the company intends to shift capacity from Bhandup to a new facility at Ambernath or Patalganga, after which, the balance 24 acres will be sold. Great plans to increase capacity by 40 tonnes per day (tpd) at the new facility from the existing 240 tpd at the Bhandup plant. It also plans to set up a radial tyre facility at a cost of Rs 500 crore over the next 36 months. The company plans to incur a capex of Rs 200 crore each for FY09E and FY10E, which will be funded through land sale and internal accruals.

With increased focus on outsourcing, original equipment manufacturer (OEM) volumes are set to increase. Given strong demand from the replacement market, Edelweiss has a positive outlook on Ceat. At current market price of Rs 115, the stock is trading at 5x FY08E (core) EPS of Rs 22.9 and 3.5x FY09E EPS of Rs 32.6

Neyveli Lignite

Neyveli Lignite

Neyveli Lignite

Neyveli Lignite

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