Buy NLC India Ltd For Target Rs. 320 - Elara Capita
Healthy Q3
In Q3FY25, NLC India (NLC IN) reported robust earnings. Revenue rose 39% YoY to INR 44bn, driven by a 40% YoY increase in power generation revenue and a 5% YoY rise in mining revenue. EBITDA surged 102% YoY to INR 18bn, with margin expanding to 41%. Other income soared 472% YoY, and reported PAT grew 174% YoY to INR 6.9bn. Power generation improved 4.71% YoY to 20.56BU in 9MFY25, with renewable generation at 1.6BU. Lignite and coal production grew 5.23% and 40% YoY, respectively. Underrecoveries declined to INR 5.17bn in 9MFY25 and are expected at INR 6bn for FY25. Capacity expansion is on track with the commissioning of the first 660MW unit at Ghatampur, while units 2 and 3 are expected by May and October 2025. South Pachwara coal block will start operations by July 2025, and Talabira thermal project will begin in March 2029. Regulated equity, currently at INR 93.83bn, is expected to reach INR 190bn by FY30. Maintain Buy with a lower TP of INR 320.
Robust earnings in Q3: Revenue increased 39% YoY and 21% QoQ to INR 44bn. Revenue from generation increased 40% YoY to INR 37bn and from mining 5% YoY to INR 20bn. EBITDA rose 102% YoY to INR 18bn. EBITDA margin increased to 41% in Q3FY25 from 29% in Q3FY24. Other income increased 472% YoY to INR 4.8bn. Tax expense declined 10% YoY to INR 1.3bn. Reported PAT increased 174% YoY to INR 6.9bn
Improved power generation: Power generation increased 4.71% YoY to 20.56BU in 9MFY25. Renewable power generation stood at 1.6BU. Lignite production increased 5.23% YoY to 17MMT in 9MFY25. Coal production increased 40% YoY to 11.5MMT in 9MFY25. Under recoveries have reduced from INR 7,250mn in 9MFY24 to INR 5,170mn in FY25. Estimated under-recovery for FY25E is at INR 6,000mn.
Capacity expansion plans: NLC has commissioned Ghatampur thermal plant – Unit one (660MW) in Q3FY25. Total installed capacity now stands at 6,731MW. NLC plans to commission Unit 2 and Unit 3 of Ghatampur thermal plant by May 2025 and October 2025, respectively. South Pachwara coal block will start operations by July 2025. The first unit of Talabira thermal project will be commissioned in March 2029 and the next two units will be commissioned after a gap of six months. TPS-2 second expansion will come in FY30. Current regulated equity stands at INR 93,830mn, which includes INR 59,000mn for thermal and INR 34,500mn for mines. Regulated equity is anticipated to reach INR 190,000mn by FY30.
Maintain Buy with a lower TP of INR 320: Through FY24-27E, we expect a revenue CAGR of 13%, an EBITDA CAGR of 14% and a PAT CAGR of 13%. We assign a P/BV of 1.8x to NLC’s regulated thermal business, based on 15% ROE assuming the cost of equity at 10.5% and growth of 5%. We value the regulated thermal business at 1.8x FY30E P/BV discounted to FY27E and the regulated mining business at 1.8x FY30E P/BV discounted to FY27E. We ascribe the RE business a value of 10x FY27E EV/EBITDA and the merchant coal business, 4x FY27E EV/EBITDA. We maintain BUY but with a lower TP of INR 320 from INR 373 (led by delayed project execution).
Please refer disclaimer at Report
SEBI Registration number is INH000000933
