Elara Securities has initiated coverage on NLC India Ltd, the designated nodal agency for lignite mining in India, with a 'Buy' rating and a target price that suggested 36 per cent potential upside over the next 12 months. The domestic brokerage expects NLC India, which controls over 50 per cent of the country's lignite reserves, to clock a revenue growth of 15 per cent, an Ebitda growth of 20 per cent and a profit growth of 20 per cent, compounded annually over FY24-27. The ongoing portfolio diversification from lignite-based plants to multi-state, multi fuel-based projects is seen aiding this growth.
The brokerage suggested a target price of Rs 373 on the NLC India stock. The scrip closed at Rs 273.35 on Monday. The Elara's target suggests 36.45 per cent upside over the prevailing price. The multibagger stock is up 111 per cent in the past one year and 403 per cent in the past one year.
NLC India has presence across thermal, mining and renewables. NLC India has a consolidated thermal generation capacity of 6 GW. It has plans to ramp up its total capacity to 20 GW by FY30. Besides, NLC India aims to expand its mining capacity to 104 mtpa from 50 mtpa currently. At present, NLC India has 1.4GW of renewable energy (RE) plants operational and NLC aspires to increase this capacity to 10 GW by FY30, Elara Securities said.
NLC India owns lignite and coal mines, which fuel its power plants and help alleviate risks related to fuel price. All capacities of NLC India are tied up with long-term PPAs, ensuring offtake, stable long-term revenue and cash flow visibility, Elara Securities said. The next valuation trigger for the stock is the announcement of a fresh project pipeline and the higher growth in regulated equity, the domestic brokerage said.
The company currently has a regulated equity of Rs 9,500 crore, with Rs 5,900 crore allocated to its power generation business and Rs 3,600 crore to mining. The management plans to increase regulated equity to Rs 18,900 crore by 2030. Elara said the expansion of regulated equity on the back of buoyant project pipeline should drive revenue and PAT growth over FY24-27 by 15 per cent and 20 per cent, respectively.
"We assign a P/BV of 1.8 times to NLC’s regulated thermal business, based on 15 per cent ROE assuming the cost of equity at 10.5 per cent and growth of 5 per cent. We value the regulated thermal business at 1.8 times FY30E P/BV discounted to FY27E and the regulated mining business at 1.8 times FY30E P/BV discounted to FY27E. We ascribe the RE business a value of 10 times FY27E EV/Ebitda and the merchant coal business, 4 times FY27E EV/Ebitda. Challenges in land acquisition and delayed payments or defaults by distribution companies (DISCOMs) are key risks," Elara said.