Nava Bharat Ventures (NBVL) has approved a buyback at a price not exceeding Rs170 per share. The aggregate amount to be spent will not exceed Rs500 million.
At the current price of Rs118 per share, a total of 4.2 million shares will be bought, which is 5.4% of the total outstanding number of equity shares.
NBVL has sharply the decreased utilization rate for the ferro alloy plant, thus decreasing the captive consumption of power and gaining from increasing merchant power sales.
The company plans to set up another 64 MW power plant at the existing location in Orissa using domestic coal and 2x135 MW power plants in Andhra Pradesh using imported coal, thus increasing its current capacity of 237 MW.
NBVL’s revenue has grown at a CAGR of 43% and earnings at a CAGR of 133% over FY06-FY08.
It has improved its operating margins from 16% to 45% during this period due to strong growth in ferro alloy prices coupled with increasing power capacity and improved operational efficiencies.
We believe the earning traction will continue from the power division with high realization of merchant sales. We have changed our valuation method from SOTP to EV/EBITDA due to the delay in project expansion.
The stock is currently trading at a P/E of 2.3x and an EV/EBITDA of 2x FY10E earnings. We value the stock at an EV/EBITDA of 3x and recommend a BUY rating on the stock with a target price of Rs171.