Nava Bharat Ventures' Q3FY19 results (Outperformer) - Liquidation of receivables by next quarter

Q3FY19 result highlights

• Maamba power plant operated at a PLF of 85%/75% and availability of 88%/90% in Q3FY19/9mFY19 (vs normative of 80% and PAF of 47% in Q3FY19). As a result, Maamba reported sales of USD60m and adjusted profit of USD10m in Q3FY19. MCL, the operating subsidiary,  has provided for deferred tax of USD13m in Q3FY19.  We estimate Maamba is meeting 15% of the Zambian power requirements.
• Maamba receivables increased to USD169m. The current cash flow is sufficient to meet debt repayment. In order to liquidate the existing receivables of IPP’s, ZESCO (the procurer) has initiated the process to raise bond of worth USD500m in two tranches which will help ZESCO liquidate all the outstanding receivables. Also, ZESCO plans to take tariff hike for its various customer categories which will ensure no further receivables accumulation for the power suppliers.
• NBEIL, operating coal based power plant of 150MW, reported a PLF of 42% in Q3FY19 (vs 60% in FY18)   The power plant has tied up power with Telangana DISCOMs for four month from Jan 2018 at a rate of Rs5.79/unit. As a result, it is expected to make profit in next two quarters (compared to break even in Q3FY2019)
• Net generation at NBVL’s standalone business was 271MU in Q3FY19, +12%  yoy.  NBVL is its captive power to produce ferroalloys (vs outside sale of power) due to favourable economics for ferroalloys.
• Reported consolidated EBITDA was Rs3.7bn (est of Rs3bn) and PAT was Rs1.04bn (Vs est of Rs1.08bn) in Q3FY19

Key positives: ZESCO to raise bonds to liquidate receivables

Key negatives: Delay in liquidation of receivables

Impact on financials: Reduce our earnings estimates by 5%/6% in FY19E/FY20E to factor in weakness in Ferro Alloys business

Valuations & view

NBVL has received earnings boost over the past 4 quarters with its pithead Maamba power plant starting commercial operations. With a cost-plus PPA and inbuilt escalation clauses, the Maamba plant is likely to earn >22% RoE in USD terms. We estimate NBVL’s earnings to increase by 45% CAGR over FY18-20E (FY19E profit – Rs4.1bn, FY20E profit at Rs4.8bn), driven by the commercialization of the Maamba plant. The stock is trading at attractive 5.9x FY19E consolidated earnings and 0.8x FY19E P/B. We reiterate our Outperformer rating on the stock with a target price of Rs195/share.