Neyveli Lignite Corporation is into Lignite excavation & power generation business. Company's power supply is mainly used by southern states due to geographical advantage. Its plants are fully integrated with lignite (24 mn tpa) drawn from its own lignite mines. Its output is used as a feedstock for generating close to 2500 MW capacity at Neyveli, Tamil Nadu.
Further, the company has a portfolio of more than 10,000 MW of power projects on the anvil for the 12th Plan (2012-17). Robust balance-sheet with more than Rs 5,400 crore of cash and cash equivalents (Rs 32 per share), healthy debt-equity ratio of just 0.43 and scope for improvement in the overall return on equity (ROE) due to favorable CERC norms, makes it an attractive bet. Moreover, it has captive mines which not only eliminate fuel risk but also enables it to earn margins higher than peers. The company is also planning to foray into renewable energy, by setting up wind energy plants. Any new development in this regard may provide fillip to the stock.
Government holds 93.56% stake in the company and we have witnessed many PSU’s get re-rated on the back of government’s aggressive divestment plans.
On FY 2011 EPS of 8.5 it trades at of around 20 times its forward earning. This may appear expensive but considering its aggressive expansion plans and advantage of backward integration and assured fuel supply the premium over other peers in this industry is justified. Moreover the expansion from 2012-2017 will significantly catapult the earnings per share. Hence investors may buy this stock with a two year perspective and may get a fabulous upside in the short run if this company gets selected for disinvestment by the GOI.
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