|
NLC’s power
cost
|
|
|
FY2000
|
FY2001
|
FY2002E
|
|
Energy sales (mn
units)
|
11,127
|
12,314
|
12,506
|
|
Revenue (Rs cr)
|
1,380.30
|
1,726.10
|
1,928.40
|
|
|
1.24
|
1.40
|
1.54
|
|
|
|
NLC’s
biggest clients by percentage of
sales
|
|
(%)
|
600MW--1st stage
|
1470MW--2nd stage
|
|
Tamil Nadu State Electricity
Board
|
31.20
|
33.60
|
|
Andhra Pradesh State
Electricity Board
|
23.30
|
22.80
|
|
Kerala State Electricity
Board
|
11.70
|
13.90
|
|
Karnataka State Electricity
Board
|
22.70
|
14.60
|
|
Pondicherry
|
11.20
|
1.90
|
|
|
100.00
|
86.70* |
|
Source: Company
|
|
* The rest of the energy
generated is used
captively
|
NLC is
also implementing a 420-megawatt expansion of a Stage-I
generation facility, which will source lignite from the
mine currently being expanded. The project is expected
to be commissioned in mid 2002.
Lignite reserves lie at the core of
NLC's cost competitiveness
NLC owns the licence for lignite
mining in Neyveli, which has total proven and probable
reserves of 3,300 million tonne.
-
Mines that are currently being exploited have
total reserves of 655 million tonne, translating into
annual production of 18 million tonne for the next 25
years. NLC operates two mines with annual production
capacities of 10.5 million tonne and 7.5 million tonne
respectively, meant only for captive use.
-
The company is now expanding the first of these
two mines in order to meet the needs of its new
generation capacity. A further 3-million-tonne
expansion is underway for commercial sale and should
be completed in FY2003.
-
The company's fuel cost works out to a competitive
Rs0.9/kwh (excluding 10% auxiliary consumption) at the
transfer price. This is even lower than that achieved
in the coal-based plants.
|
Lignite’s cost
advantage
|
|
|
FY2000
|
FY2001
|
FY2002E
|
|
Lignite
(mn tonne)
|
16.50
|
18.00
|
18.30
|
|
Lignite
-transfer price (Rs cr)
|
802.20
|
1,122.30
|
1,197.20
|
|
Rs/tonne
|
485.00
|
622.00
|
654.00
|
|
0.72
|
0.91
|
0.96
|
|
Source: NLC’s annual
report
|
A segmental
analysis of the first nine months of FY2002 results
reveals that even at the seemingly low transfer price
for lignite, the mining operations are extremely
profitable, with a profit before interest and tax (PBIT)
margin of 45%.
|
Segmental financial
performance (9 months-FY2002)
|
|
|
(Rs cr)
|
|
Lignite
mining
|
|
Revenues
|
912.40
|
|
PBIT
|
414.40
|
|
PBIT
(%)
|
45
|
|
Power
generation
|
|
Revenues
|
1,532.50
|
|
PBIT
|
348.60
|
|
PBIT
(%)
|
23
|
Financial performance reflects the
operational strengths
NLC enjoys strong profitability (an
earnings before interest, tax, depreciation and
amortisation margin of over 40%), despite its staff
strength of 20,000. This is partly due to cost benefits
derived from the pithead plants. Cash flows from
operations are about Rs600 crore, despite 120 days'
debtors. The capital structure is robust, with a low
debt/equity of 0.25x.
Strategic value of Rs55/share; Long-term Buying
is recommended for NLC shares
The strategic value of NLC's assets
is estimated at Rs55/share. NLC offers
good value to potential acquirers--Tata Power and BSES--who have so far taken the far riskier route of
setting up IPPs or participating in privatisation of
distribution. The recent closures of many IPPs across
the country highlight the risks. NLC offers a far safer
option to expand.
|
Strategic value (Rs cr)
|
|
|
CapacityMT/MW
|
Valuation Rs/unit
|
Value Rs
cr
|
|
Lignite mines
(US$ 0.5/T)
|
655
|
24.5
|
1,604.80
|
|
Power plants
(Rs 40mn/MW)
|
2,070
|
40
|
8,280.00
|
|
Total Enterprise
Value
|
|
9,884.80
|
|
Net
Debt
|
|
|
666.50
|
|
Equity
value
|
|
|
9,218.20
|
|
|
|
55.00
|
Valuation based on global benchmarks and
replacement cost
We
have valued NLC's lignite reserves on global benchmarks
and its power generation capacity on replacement cost
(at Rs4 crore per megawatt). We have conservatively
valued NLC's lignite reserves at US$0.5/tonne, at the
lower end of the global range, even though the company's
EBITDA margins are far higher than in most developed
countries and the use of coal is declining.
Coal
and lignite will remain the main sources of energy in
India till such time that tariffs are rationalised to
cover costs. The low variable cost of lignite would
override the environmental concerns. As such we believe
our valuation of NLC on global benchmarks is
conservative. Moreover we have only accounted for NLC's
proven reserves, not all of its 3,300 million tonne.
Future Plans
During FY01 the company
spent Rs10.6bn on various ongoing capex projects. The company is currently
expanding its mining capacity by implementing Mine-1 expansion (4mtpa) and
Mine-1A expansion (3mtpa) at a cost of Rs16.6bn and Rs11.1bn respectively.
The company is also expanding its capacity in TPS-I by 420 MW (2x210MW) at
a cost of Rs14.4bn. The mines are expected to attain full capacity
utilization in 2002-03. The TPS-I expansion is expected to be commissioned
by May 2002.
Further Ministry of Coal
has approved projects for expansion of Mines – II (10.5mtpa to 15mtpa),
TPS – II expansion by 500MW and Mine – III expansion of 8mtpa. The
company also has plans to go beyond Neyveli to put up mining cum power
generation projects in Gujarat and Rajasthan and a 500MW power plant in JV
with Chennai Petroleum based on residual fuel from refineries. Given the
company’s strong balance sheet and excellent track record, we do not
envisage any concerns on the company’s fund raising abilities.
Risks
One concern, as mentioned
earlier, is the outstanding dues from SEBs, which stood at Rs7.72bn (140
days sales). Secondly high employee levels are a big concern in PSUs. NLC
has 19905 employees as on March 2001. In FY00 the company had a VRS scheme
and a total of 1543 employees accepted the same. In FY01, salaries &
wages at Rs6.04bn was 25% of the company’s sales. As against this for
BSES, employee cost is less than 3% of sales. We believe in the current
economic environment, NLC would be able to take proactive steps to reduce
its manpower and improve its profitability. Moreover mining is a manpower
intensive activity and a part of the surplus manpower would likely be
absorbed in the company’s expansion plans.
So,
NLC's shares are triple worth a Penny. I have this stock in my portfolio.
Why don't you try this?
Article
courtesy : www.sharekhan.com,
www.indiainfoline.com
Performance of
NLC - Is NLC shares worth a penny?