Neyveli Lignite

Neyveli Lignite

Neyveli Lignite Corporation (NLC), a PSU situated at Neyveli in Tamil Nadu, is engaged in the business of lignite mining and power generation. It is one of the largest power generating companies in the country with a capacity of over 2,000 MW. NLC has an installed capacity to produce 18 MTPA of lignite. It primarily caters to State Electricity Boards (SEBs), with Tamil Nadu Electricity Board being a major consumer.

The company has a good financial track record, despite having a 94% government holding. Over the last decade, the operating margins for the company has improved from about 12% to almost 40%, while its return on capital employed (ROCE) has improved from lower single digits to about 17%. For 1HFY04, the company registered a bottomline growth of 55% on the back of a strong 15% growth in topline. Almost 2/3rd of the revenues was contributed by the power segment, the balance coming from the lignite-mining segment. However, the bottomline contribution tilts in favour of the lignite segment, as this segment’s contribution stood at 53% during 1HFY04.

The company is currently on an expansion mode. Post the completion of its expansion programmes, the company’s mining capacity will stand expanded to 24 MTPA of lignite, while its generation capacity will increase to almost 2,500 MW. It must also be noted that by the end of the Tenth Plan (2002-07), NLC is targeting lignite mining capacity of 36.5 MTPA and power generation capacity of 4,000 MW. Moreover, the passage of the Securitisation Act augurs well for NLC, as it solves a major problem faced by power generating companies i.e. recovery of dues from SEBs. Also, the beginning of reforms in the power sector with the passage of the Electricity Act, 2003 should spell good times for the company going forward. It must also be noted that NLC is on the government’s list as a probable divestment candidate.

Going forward, with a projected demand of more than 100,000 MW additional power generation capacity by the year 2012 to bridge the gap between demand and supply, and the power reforms already initiated, there lies significant opportunities for the company. However, huge power dues from SEBs continue to be a cause for concern, though some headway has been made to recover the dues by converting them into bonds.

At the current price, the stock is trading at P/E multiple of 7.0x FY04 revenues. With the restructuring in the Tamil Nadu SEB (state electricity board) and of the other three adjacent states to which the company is selling power, the payments are being received timely. This will also reduce the working capital costs of company to some extent. Historically, the state governments, in order to strengthen its voter lobby, has been distributing free power to farmers, so there is no confidence on the part of government. However, if things go as per plan, the company is poised for good growth in future. The company has also recommended a dividend of 14% for the year ended FY04 (dividend yield 3%).

See attached chart for my recommendation and comments.

Attached Images

neyveli20040803.gif (20.4 KB, 131 views)

__________________
Best Wishes!

Traderji

www.Traderji.com

Hi Traderji,
Neyveli is trading at 46 now. I got it at 49. Is it advisable to hold it?. Please advise.

regards
Rajesh.B

Neyveli Lignite has recently declined from its top of 51.40 on low volumes. It is currectly taking support at 46.00 which was also its previous top.

Hold on to your position with a stoploss at 45.50, if you cannot afford the stoploss mentioned in my initial post.

__________________
Best Wishes!

Traderji

www.Traderji.com

yes i think now is uptreand 1st targets is 55 then 65 to 70

Dear Sir,

Neyveli is going downwards day after day.

can you comment on it.


Regards,

Hiten

I always mention a stoploss levels for all my recommendations. Please read my initial post and look at the attached chart for the stoploss levels and my trading recommendation.

__________________
Best Wishes!

Traderji

www.Traderji.com

Dear Sir,

I always follow your recommendations about stop loss.

I just wanted to know, is there any chance of it to bounce back in very short term.

Regards,

Hiten

One will have to wait and see how this stock behaves on a positive closing of the Index.

Till then it is wait and watch with an eye on the stoploss.

CONGRATULATIONS AGAIN TRADERJI!!!

As always your analysis was bang on target.

I held on to the stock with a stoploss at 42.50 and i am now rewarded.

Neyveli Lignite is currently trading at 51.60.

Those of you had the discipline and patience would have profited.

GREAT CALL Traderji,

its up up and up at 64.00

Do you have a subscription service. The analyst in my ex company (one of the largest financial institution) did not come anywhere close to this.

I sure do hope the members must have made $$$$$