Monday, February 25, 2008

Nava Bharat Ventures,BUY

Nava Bharat Ventures,BUY

CMP-233 Price Target-305

BUSINESS BACKGROUND

The company was promoted by Dr D. Subba Rao, Sri P Punnaiah and Sri A.S Chowdhri in 1972.The Company began its operations with manufacture of ferro silicon in 1975 at Paloncha in the State of Andhra Pradesh. The company has diversified business profile with interestsin power generation, ferro alloys (essential inputs to steel manufac-ture), sugar and downstream products and infrastructure. The com-pany’s power plants are located at Andhra Pradesh and Orissa. Thecompany has total installed power generation capacity of 153 MW which is being expanded to 237 MW. Nava Bharat is a leading pro-ducer/exporter of ferro alloys with annual production of about 1, 25,000 MT of Manganese and Chromium Alloys in the aggregate. Nava Bharat also undertakes production of sugar and allied products in its 3,500 TCD integrated plant located at Samalkot in the belt of coastal Andhra Pradesh and close to Visakhapatnam and Kakinada seaports for exports.

INVESTMENT RATIONALE

The 32 MW coal-based power plant of company has been operating at a decent PLF of 85%, and company is expecting tocommission the new 64 MW facility some time in March-April, 2008. This is going as per schedule of FY2009, and the full benefit of this will be accrued in the year 2009-2010.

The company’s major domestic end users includes big nameslike Visakhapatnam Steel Plant, TataSteel, Essar Steel, Mukand Ltd, JSW steel, SAIL, Sunflag Iron & Steel Co Ltd, Mahindra Ugine Steel Co Ltd, Shah Alloys Ltd and Ispat Industries Ltd.

The ferro alloy segment of the company made a significant contribu-tion to profit margin despite of increasing cost of Manganese and Chrome ore. The company in order to control the surging cost of Manganese and Chrome ore is looking forward to establish long term tie ups with mining companies in India as well as abroad so that ade-quate quantity of ore can be acquired at reasonable prices.

About 50MW power of company on an average was marketed under merchant sale route while about 60 MW of power on an average was consumed for ferro alloy production. As company’s strategy in power is to enhance the merchant sales through open access hence in near term company have plans to set up medium sized power units in mer-chant power domain.

The company has posted strong sets of numbers in recent qtr as the topline of the company has witnessed whopping growth of 80% in Qtr ended Dec’07 as compare to qtr ended Dec’06 while the EBIDTA of company has witnessed huge growth of more than 129 % in qtr ended Dec’07 as compare to qtr ended Dec’06.

SEGMENTAL BREAK UP

Power Business

The revenue in power segment has shown healthy surge of 33% from Rs 696.06 million in qtr ended Dec’06 to Rs 925.75 million in qtr ended Dec07. This was mainly on account of new generation capacity added by the company. The PBIT has also shown growth of 25% from Rs 413 million in Qtr ended Dec’06 to Rs 519.04 million in qtr ended Dec’07.

Ferro Alloys

This segment has posted healthy growth of 146% from Rs 752.28 million in qtr ended Dec’06 to Rs 1855.41 million in qtr ended Dec’07 in terms of revenues. Similarly PBIT of company has posted handsome returns as company has shown loss of Rs 22.32 million in qtr ended Dec’06 which was converted into profits of Rs 476.77 million in qtr ended Dec’07.

Sugar

The company has witnessed revenue growth of 6.55% from Rs 173.88 million in qtr ended Dec’06 to Rs 185.28 mil-lion in qtr ended Dec’07.

VALUATION

At the current market price of Rs 233, the stock is being offered at 7.99x on TTM eps of Rs 29.15.The company has shown strong financial performance in current quarter. Though the company operates in segments of Power, Ferro Alloys and Sugar but going forward the company’s major focus will be on its power business and that too on increasing the merchant sales.

Looking at the present financials of company, and strong future potential that power sector offers, the company is all set to cater these opportunities.

Hence we recommend “BUY” on the stock with thepricetarget of Rs305 in medium term.

HEM, 22nd February 2008


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