Target: ₹373
CMP: ₹279.85
NLC India, a Navratna central public sector enterprise (CPSE), enjoys an extensive presence across varied energy multiverses – viz., lignite and coal mining, power generation, power trading, and consultancy for mining and power sectors.
We initiate coverage on NLC India (formerly Neyveli Lignite Corporation) with a Buy and an SoTP-TP of ₹373, implying a 35 per cent upside from the CMP. Through FY24-27, we expect a revenue CAGR of 15 per cent, an EBITDA CAGR of 20 per cent and a PAT CAGR of 20 per cent. We assign a P/BV of 1.8x 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 1.8x FY30E P/BV discounted to FY27E and the regulated mining business at 1.8x FY30E P/BV discounted to FY27E. We ascribe the RE business a value of 10x FY27E EV/EBITDA and the merchant coal business, 4x FY27E EV/EBITDA.
Announcement of fresh project pipeline and Higher growth in regulated equity are valuation triggers.
Challenges in land acquisition and delayed payments or defaults by distribution companies (DISCOMs) are key risks.