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Our Take:

Nava Bharat Ventures experienced recovery in operating performance of its ferro alloys division, on the back of improvement in both volume and realisations. Additionally, renewal of the ferro chrome conversion license with Tata Steel Mining Ltd (subsidiary of Tata Steel Ltd) till fiscal 2025, provides stable cashflow visibility. The Agreement postulates that the entire smelting capacity of the Odisha plant is dedicated to TSML to produce up to 70,000 metric tons of high carbon ferro chrome per annum. However, offtake from external power, including 150 MW capacity at Nava Bharat Energy India Ltd (NBEIL), was lower than expected due to lower demand on account of the pandemic. For FY22 we expect strong performance of its ferro alloys division, given the strong demand from steel sector coupled with high silico-manganese prices. The captive power capacity should continue to support profitability in the ferroalloy segment. We hope that the arbitration approach on Maamba Collieries Ltd (MCL)’s receivables would solve the issue for the company. However, our view is constrained by cyclical nature in the ferroalloys and by fluctuations in power realisations and coal prices in NBEIL, and the significant investment in group entities, particularly MCL. NBVL has discontinued its sugar business at Samalkot, AP due to shortage of cane. It tried to sell the unit but the agreement was cancelled. The company completed a buyback of 15,548,172 equity shares, amounting to Rs. 1,341 Mn and buy-back tax of Rs 250 Mn in Q4FY21.

Valuations & Recommendation:

Presently, the stock is available at reasonable price to earnings of 3.1x (FY23E EPS). With the improved operating performance of ferro alloy business, a long term contract with Tata steel provides decent cash flow visibility, arbitration route for solve MCL’s receivables issue and healthy risk profile, we expect a healthy growth for FY22 and FY23.

We think NBVL can report a PAT of Rs.434 cr, EBITDA of Rs.986 cr and PAT of Rs.434 cr in FY23, due to the issues at MCL compensated partly by better performance in other businesses.

We think the Base case fair value of the stock is Rs 146 (5.0xFY23E EPS) and the bull case fair value of the stock is Rs 161 (5.5xFY23 EPS) over the next 2 quarters. Investors can buy the stock at the CMP (4.25xFY23E EPS) and add on dips to Rs.105 (3.6XFY23E EPS).

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