Sushil Finance initiates ‘Buy’ on Nava Bharat Ventures

MUMBAI: Sushil Finance has initiated coverage with ‘Buy’ rating on Nava Bharat Ventures. It expects the stock to touch target of Rs 517, an upside of over 30 per cent to current market price of Rs 397.

“Nava Bharat Ventures is an evolving power utility, with 237 MW of operational capacity (including 9 MW bagasse based power plant). It has strategically aligned itself to downsize its ferro alloys business which is highly cyclical in nature.

The company sells most of its power on merchant basis and has potential to generate and sustain strong ROE with the future projects like coal & manganese mining and foray into real estate. One of the major risks to our assumption would be downward pressure on the merchant rates which could hamper its margins.

However, with the economy on the revival mode aided by rise in industrial production and persisting power deficit scenario, the merchant tariffs are expected to be stay in the range of Rs 5 – 7 for next few years.

NBVL has a strong balance sheet with very low leverage. With strong operational cash flows it is in a strong position to fund its future projects. At CMP of Rs 379, the stock is trading 1.5x FY11E BVPS & 1.2x FY12E BVPS and PE of 6.9x FY11E and 5.8x FY12E.

We believe that it is at a significant discount to its intrinsic value & thus we initiate coverage with a BUY rating on the company with a target price of Rs.517 (based on 1.7x its FY12E BVPS of Rs. 304.2). Buy, with a target of Rs 517,” the brokerage said.