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Why I am long on Neyveli Lignite for trading

shah's picture
Submitted by shah on October 21, 2009 - 09:44

»
Submitted by shah on October 21, 2009 - 22:56. #

On fundamental side

Neyveli Lignite (NLC) reported a 21.3% topline growth on a like-to-like basis for the reported quarter to Rs 884.3 crore. The net profit for the company was marginally up at Rs 287.5 crore as against Rs 285.8 crore in the corresponding quarter last year.

The power generated by the company for the reported quarter has witnessed a significant growth of 25.4% to 4.9 BU. However, due to the pricing under the old tariff mechanism the company’s revenue growth has been capped at 21.3%. With the new policy implementation taking effect before the end of FY10, the effect is expected to be revised retrospectively or in the active quarter of implementation. So far, there has been no update on the disinvestment front. However, we continue to believe it is an imminent disinvestment candidate in the coming years.

At the CMP of Rs 139, the stock is trading fairly at 2.2x and 1.3x its FY10E and FY11E book value, respectively. Better tariff and higher stability of the plants in its portfolio would help NLC grow at a reasonably good pace.

Technicals

This stock is trading in a very narrow range since last 2 months and all supplied seems to be absorbed . Any demand at these levels will spurt the stock to new highs. Volume is picking up that suggest that stock is ready to explode.

 

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