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Sunday, 6 August 2017

NLC India - Fundamentally Strong Long-Term Stock

NLC India: CMP: 98.4, P/e: 5.94, P/b: 0.84, Div Yld% 3.35




Neyveli Lignite Corporation (NLC), incorporated in 1956, is the business of lignite mining and power generation. At present, NLC operates three opencast lignite mines of total capacity of 24 million tonnes and three thermal power stations with total installed capacity of 2490 mega watt.
Neyveli Lignite Corporation is a ‘Miniratna’ Public Sector Enterprise, under the administrative control of Ministry of Coal. The company also operates subsidiary -- NLC Tamilnadu Power Limited.
It has a chequered history of achievements.

Mines

Mine-I - This mine, located on the northern part of Neyveli Township in Tamil Nadu, is spread over an area of 26.69 sq km. This mine has reserve of 365 million tonnes and has a production capacity 10.5 million tonnes of lignite per annum. This mine feeds lignite to its 600 MW capacity of First Thermal Power Station and 420 MW Thermal Power Station – I (expanded).

Mine-IA - This mine is spread over an area of 11.6 sq km. The mine has a reserve of 120 million tonnes with a production capacity of 3 million tonnes of lignite per annum. It caters to the need of 250 MW independent power project, in addition to the requirement of NLC's Thermal Power Stations.
Mine-II - This mine was sanctioned by the Government of India in February 1978 with a lignite production capacity of 4.7 mtpa which was increased to 10.5 mpta in 1983. This mine is spread over an area 27.74 sq km and has a reserve of 390 million tonnes.
Thermal Power stations (TPS)TPS-I -- This is South Asia's first and only lignite-fired thermal power station. This plant was commissioned with one unit of 50 MW and currently possess six units of 50 MW each and three units of 100 MW each. The company has set up additional capacity of 420 MW. It has total generating capacity of 1020 MW
TPS- II - This power plant was constructed in two stages in 630 MW and 840 MW. This power plant has a generating capacity of 1470 MW consists of seven units of 210 MW each.

Research and Development

Centre for Applied Research and Development (CARD) is the In-house research and development centre of Neyveli Lignite Corporation and is recognized by the Department of Science and Technology since 1975. It is continuously pursuing research and development programmes in the area of diversified use of lignite, waste utilization, soil reclamation and much more. Primarily the R&D Unit CARD has service facilities with facilities for monitoring of air, water, materialogy and soil and also caters to various testing and analytical needs of various industrial units of Neyveli Lignite Corporation.
UNIDO has funded a project to establish Lignite Energy Research Institute (LERI) at Neyveli, which will be capable of providing technical support to ensure the latest and most appropriate technologies for minimising negative environmental effects. CARD is carrying out various R&D works on waste land reclamation, solid waste utilisation, by-products utilisation of various industrial units, diversification product development, etc.
CARD has also taken up various joint projects in association with CSIR laboratories, universities, other educational institutions and other public sectors. The joint projects submitted were funded by Ministry of Coal.

Projects

Neyveli Lignite Corporation has entered into a joint venture with Gujarat Power Corporation Limited to set up a mine-cum-power project in the state of Gujarat, at an estimated cost of Rs 6,400 crore. The ministry of coal has sanctioned Advance Action Proposal for taking up certain preliminary activities. The Government of Gujarat (GoG) has been addressed for water allocation, mining lease, etc. Feasibility Report and Environmental Report for the mine and power projects are under preparation.
The company has proposed to set up a coal based mega power plant in the state of Orissa at an estimated cost of Rs 8,000 crore. In-principle approval of the Government of Orissa for allocation of land in Rengali Taluk of Sambalpur district in Orissa is awaited. The joint venture company between Mahanadi Coal Fields Limited, Hindalco and NLC for mining coal from Talabira block has been established. MCL, being the lead partner is carrying out all pre-project activities. Geological report has been prepared and EIA/EMP report is under preparation. The mine plan has been approved and land acquisition is in process.
NLC also proposes to exploit the lignite deposits in Hadla and  Palana lignite blocks in Bikaner district of Rajasthan for the 250 MW power plant to be set up as an extension of the on-going Barsingsar Power Project.

Positive:

1.    Stock P/E is 6.16, lowest among peers and lowest historically
2.    Price to book at 0.87 attractive among peers
3.    Promoters holding at huge 89.32% with zero Pledge (If government started sale of assets, this will be  having huge value unlocking
4.    General public holding as less as 1.71%
5.    Dividend yield is at 3.26%, one of the highest among peers
6.    Stock is available at 18% discount from 52wk high
7.    Operating margins at 23+% QoQ basis
8.    Stellar last quarter performance
9.    Operating margins at nearly 30% YoY consistently
10.    Net sales gained by 30% TTM vs. YoY
11.    Operating profit  increase by 13% TTM vs. YoY
12.    PAT growth 97% TTM vs. YoY
13.    Other income reduced by 25% historically
14.    ROE at 10% and consistent
15.    ROCE is at 12% and consistent
16.    Huge capital infusion YoY
17.    Fixed assets increased by 50%, that’s so huge for a Large cap, so we can expect increase in revenues in future.
18.    Debt to equity is 0.2 historically low, although there is increase in 50% of fixed assets and also with no reduction in reserves
19.    Cash from operating activities as positive and 50% increase from Y’15 to Y’16
20.    Cash from investing activity is negative means company actively investing
21.    Cash from financing activity is negative YoY means company also paying the borrowings effectively

Negative:

1.    Although ROE is consistent but low at 10%
2.    Although Sales growth is consistent but below 9%
3.    Contingent liabilities of Rs.5091.25 Cr
4.    Company having external investment equal to yearly PAT so need to review
5.    Sudden sprut in financials of FY’17 Q4, resembling healthy financial ratios, so need to watch for next quarter earnings
6.    Negative news: NLC trade unions to go on indefinite strike from August 3

Also, The company is planning to commission two 65MW solar power projects at Neyveli, Tamil Nadu by June this year and solar power projects with 500MW capacities at various locations in the state by 2018-19. The 1000MW Neyveli New Thermal Power Project (NNTPP) will be commissioned by March-April, 2018

Another Jewel to Crown:



 Conclusion:

 With the strong financial performance, Huge capital expansion, Attractive Valuation, New power plants, Renewable energy plans, Good dividend Yield %, NLC india is a perfect long-term bet.

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