Gearing Up For Growth - Neyveli Lignite Corporation

Neyveli Lignite Corporation (NLC) formed a part of our recommendations in our special issue, ‘Where To Invest in 2009’. The scrip, which was part of our 2009 portfolio, was recommended at Rs 59.15. The scrip’s post recommendation has performed well, as per our expectations and has touched a high of Rs 76, giving an overall appreciation of 28 per cent over the recommended price. At CMP of Rs 69.05 the scrip still gives an appreciation of Rs 18 per cent and hence calls for review where we feel it is time to book partial profits in this scrip once it reaches price of Rs 77. Though it looks quite early for the review of this scrip considering the fact that it was recommended in the first issue of 2009, the idea behind this move is for investors to make money.

There were various reasons why we had selected NLC. Firstly, there was always the comfort level with a PSU company such as NLC in a market where sentiments were weak. Secondly, we felt the companies with good cash in their books are well poised to weather the current phase than others. NLC has a whooping Rs 5550.71 crore in cash and cash equivalent compared to its market cap to Rs 9223.65 crore. That apart, NLC had projects which are expected to come on stream soon, which would push its future growth. Finally its valuations were quite attractive when its EV/MW NLC was available at a discount of 30 per cent to its fair value, while on replacement cost basis this discount was at 37 per cent. We feel at a price of Rs 81 NLC would look fairly valued and any upside from there would be bonus for investors. Hence investors can continue to hold the rest for better returns.