Nava Bharat Ventures reported net profit of Rs1.2bn (up 1% yoy), better than our estimates - due to higher merchant realizations of Rs6.15/Unit (our assumption Rs4.70/Unit). Revenues declined by 39% yoy (in line) to Rs2.5bn - attributed to co's strategy to sell more profitable power instead of Ferro alloys (86% yoy decline in revenues). Led by higher contribution from power, EBITDA margins improved by 970bps yoy. APAT stood at Rs1.25bn (MTM losses of Rs67mn on FCCB outstanding), down 7% yoy but ahead of our estimates of Rs907mn. We maintain earnings of Rs52.2/42.8/43.8 for FY10E/FY11E/FY12E. We have not factored contribution from Indonesian coal mine (10-15% potential earnings upside in FY11E). Further, more clarity (expected shortly) on Zambian coal mine cum power project is likely to be a positive trigger. At CMP of Rs390, the stock is trading at 9.1x FY11E earnings and 1.7x FY11E Book Value. This is 30-40% discount compared to peers. With (1) base case project level ROEs (27%) comparable with peers, (2) huge scope for growth & return expansion through leverage (net cash of Rs2bn), (3) earnings upside from coal mining - we remain positive on the stock.
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