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Neyveli Lignite: Big plans

Sep 15, 2003

With the passage of the Electricity Act 2003, a ray of hope has come to the power sector. Reserve Bank Of India (RBI) has already issued bonds worth Rs 115 bn to National Thermal Power Corporation (NTPC) in lieu of the huge due that it is to receive from various SEBs. Neyveli Lignite is another PSU with huge dues pending against Tamil Nadu state electricity board. In the light of the fact that major capacity expansions are planned in the industry, let us have a look at what plans this PSU has chalked out for the future. The Neyveli Lignite Corporation, established in 1956, is a Public Sector Enterprise based in Tamil Nadu. The company is primarily into mining of lignite with a capacity of around 18 m tonnes and its utilisation for power generation, having an installed generation capacity of 2,070 MW. It has expertise in renovation of old Thermal Power Stations.

Let's have a look at the 1QFY04 results of the company.

(Rs m) 1QFY03 1QFY04 Change FY03
Net Sales 5,707 6,372 11.7% 26,815
Other Income 405 580 43.3% 4,816
Expenditure 2,535 2,949 16.3% 12,036
Operating Profit (EBDIT) 3,172 3,424 7.9% 14,778
Operating Profit Margin (%) 55.6% 53.7%   55.1%
Interest 10 158 1445.1% 39
Depreciation 643 1,172 82.3% 2,596
Profit before Tax 2,923 2,674 -8.5% 16,959
Extra Ordinary Items 3 -   -57
Tax 1,008 832 -17.5% 5,394
Profit after Tax/(Loss) 1,918 1,842 -3.9% 11,508
Net profit margin (%) 33.6% 28.9%   42.9%
No. of Shares (eoy) (m) 1,678 1,678   1,678
Diluted Earnings per share* 4.6 4.4   6.9
P/E ratio   8.8    

FY03 proved to be a good year for the company as its topline grew by around 20% YoY and bottomline was up 40%. The PLF (plant load factor) moved up to 82%, which made possible for the company to produce 14,900 MU of power, which is almost 5% higher YoY. The lignite production was also up by 2% YoY. The company has completed mine-1 expansion, which will help it to increase the production of lignite in FY04.

In 1QFY04, the topline of the company was up 12% YoY but the bottomline was lower by around 4% mainly due to an increase in the interest cost and depreciation. Interest cost is expected to remain on the higher side in the coming quarters, as the company is going for expansion of both, mining and power generation capacity.

Neyveli Lignite is expanding its Thermal Power generation capacity by 210 MW, which is expected to commence operation by the end of FY04. The company has received funds amounting to Rs 141 bn from the Government of India (GOI) for various projects during the Tenth Plan period. The company's expansion plans include a Thermal Power Plant at Tuticorin with a capacity of 1,000 MW as a joint venture with Tamil Nadu Electricity Board (TNEB). Apart from Tamil Nadu, the company is in talk with various state governments to add another 3,500 MW.

What stops this PSU from getting valuation similar to its peers like Tata Power, is the fact that despite having generation capacity of 2,070 MW, which is 90% of Tata Power's capacity, Neyveli's topline is just 60% of Tata Power's topline. This inefficiency is mainly due to huge T&D losses, as a result the company is not able to realise money for what it produces. Moreover, the company is still having huge dues pending against the Tamil Nadu state electricity board.

At the current price of Rs 39, the stock trades at P/E multiple of 8.8x, annualised 1QFY04 earnings. The company has experience in servicing of power plants, which is a secured business and going forward it will help the company to boost its revenues. The company's huge capacity expansion plans going forward will, however, take time to contribute to the topline.

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