Hello and welcome to KYC, a brand new show at NDTV Profit. In this fast-paced world of stock markets, investors are bombarded with information, but what they often lack is a deep, comprehensive understanding of the companies they invest in. Know Your Company is a show designed to give you regular investors powerful, actionable insights into the fundamentals of a single NSE-listed company every single day. Today we talk about NLC India. Now this company actually, in fact, started off as, well, a mining company, lignite specifically, that is its strong play. But over the course of the last few years, we've started to see a little bit more contribution coming in from power generation as well. So it is, of course, a company which has a Navratna status, which means it's also a PSU, and it's a major producer of lignite, also looks at generating electricity from thermal sources of energy. But that said, let's take a look at how the revenue contribution has changed over the past few years. As you can see, and as I was telling you, while the contribution of mining is still a major, well, it's come off to a certain extent now, just a third, while the contribution from power generation has moved up from 15% to 23%, likelihood of this moving even higher. Now, as usual, what we also try to do is give you a rating of how this company has performed over the past few years in terms of its income. We talk about the balance sheet as well as cash flows and many other factors, and we give, we try to give you an overall rating with respect to how the company has done. Based on that, let's start off with the first one as usual, and I'll talk about the income statement. Now, overall, it's a company which gives you, well, revenues around 13,000 crore on an annual basis. It stands at about a little over 4,600 crore in terms of its operating profits, as well as net profits standing at a little less than 2,000 crore. And if you consider the CAGR, that's not been substantial and certainly not up to the standards of many of its other larger peers in the industry. So we do have about a 4% CAGR over the last three years in terms of its revenue. Profitability, on the other hand, has seen a compounded annual growth rate of around, well, over 31% over the course of the last three years. Overall, this is how things have panned out as far as the income statement is concerned. But on that note, I'm also going to get in my colleague Mika to, well, take us through and guide us through several other financials here as well. So Mika, thanks for joining in. You know, we've, we've spoken about the income statement. It's been pretty steady, though the top line, you know, growth has not been very impressive. The bottom line certainly has been. What is the balance sheet telling you?
So in terms of shareholder equity, it stands a little over 20,000 crore, but the gross debt mark is actually higher than the shareholders' equity, stands at over 22,500 crore. And this could be attributed to the aggressive capex plans that the company has. It's increasing its capacity a lot, a lot of projects, you know, coming its way. But the cash and bank balance right now, as of Q2 FY25, stands only at 943 crore. So, you know, it has been indicated that the company will have to raise money, whether it's from internal sources, from external sources, or its asset monetization plans, is, you know, what we'll have to look out for as we go ahead. But, you know, something that has stood out is its return ratios, return on equity and capital employed. How do, how do those look like?
Right, so, well, it's a thumbs up for the income statement because, well, we've seen good profitability growth, but I would give it a neutral because of the balance sheet. So it's about one and a half points so far. In terms of the return ratios, well, we are seeing an improvement there as well, even though the return ratios are not impressive, because we actually tend to see return on equity and return on capital employed at marks of well over 20%. Still, as you can see on your screen there, there certainly is an improvement. From sub-10% on return on equity, it's moved up to around 12%. Return on capital employed accordingly has also moved up. So while the numbers are not impressive, because of the fact we're seeing an improvement, I would give this another thumbs up. But what about cash flows, Mika?
Yeah, so it's been volatile over the past few years. You know, in 2021 it stood over 2,500 crore. 2022 is where you actually saw the jump at 6,200 crore, but 2023 saw a big dip in numbers at around 2,400 crore. But 2024 did see a recovery, and this is, I'm talking about financial years, by the way. So, you know, I'll give it a thumbs up as well because while we're nowhere close to the 2022 levels, we are seeing the recovery, and, you know, H1 performance of the company has been strong in terms of, you know, the top line, bottom line numbers as well as the cash flows that we're seeing. So thumbs up in regards with the cash flows of the company.
Point taken, Mika, but let's also talk about the shareholding then. And the reason why we want to talk about shareholding is firstly we want to see how closely the company has been held. So naturally the promoter, that is the President of India, that's the government of India, holds the majority at a little over 72%, and that hasn't changed in years. What has, however, changed is, well, you know, a little bit of an increase in terms of the retail holding that comes up at around 11.8% from around 11%. Not necessarily a bad thing because we still have well over 89%, about 88-89% of the company still being held by institutions and the promoters, which is why I'd give this one a thumbs up as well. But let's move on and talk about the street credentials as well, Mika. How has the stock done over the past few years, as well as what you can give us in terms of the dividend payout?
Yeah, it's a thumbs up in terms of share performance. We've seen strong growth. Now, when you talk about the five-year share performance, it's grown at 3.48 times, which is a four times growth. And in terms of one-year share performance, also done pretty well. It's up over 45% in the past one year. In terms of dividend payment, we did see some kind of contraction in dividend yield in FY24. It's 11.2% versus 14.9% in FY23, but it's still well above the historical averages, and the company will hopefully be announcing dividends in FY25 as well. So it's a thumbs up on the dividend front as well. But in terms of street coverage, I guess that's where it lacks.
It certainly does. So it doesn't have ample street coverage. We don't have as much in terms of, you know, analyst reports, or for that matter, we don't have too much in terms of, you know, all your updates with respect to, well, you know, your conference calls. That said, you know, if you consider the overall rating as far as NDTV Profit is concerned, on the eight parameters that we have considered, it's still about six and a half out of eight. So that's certainly not a bad rating at all, at least as far as the company's credentials are concerned. But among the many other things, maybe the top line growth could be a concern. But I'm going to stop right there and I'm going to talk about the SWOT analysis. So Mika, tell us about the strengths and the weaknesses of the company.
That's right. So, you know, starting off with the strengths first of all, it's diversified its revenue stream over the years. Now it operates across thermal, across coal as well as lignite mining, and its venture into renewable energies. It also has a steady cash flow visibility because the company's capacities are tied up with power purchase agreements, and these power purchase agreements are long-term power purchase agreements because they usually range to 20 to 25 years. And the company is also operating on a regulated equity business model, which means that the, you know, the kind of return on equity that is set for the company is already regulated by the regulator. The company also has lower fuel risk because of its mine ownership. It has lignite and coal-based mining operations, and a lot of this capacity is used for its thermal power plants. In terms of, it also has seen improvement in assets and operating cash flows in the past, in the last year as we're seeing. It also benefits from being a government-backed company. We spoke about how it has a strong parentage in terms of the central government as well as the state government, and its plants are strategically located in terms of where the, you know, the mining production stands and where their thermal plants stand, as well as renewable operations in terms of how the grid infrastructure is taking place. In terms of weaknesses, one, like we've mentioned, is the slower pace of revenue and EBITDA growth. You know, it's only seen a four to five percent CAGR over the last three years, so that could be, you know, in terms of how the plants are operating, in terms of capacity utilization. They've also seen muted margin expansion, just about, just around 30 basis points over the last three years. They also have a strong reliance on lignite. So while, you know, having those captive mines is a plus, but the, you know, cost of these lignite assets also varies because it's a commodity. And lastly, it does have complex operational challenges, whether it's in terms of project execution, equipment challenges, as well as getting labor. But in terms of, you know, its opportunities and threats, what can we talk about here?
You know, so it's tied up to some of the strengths and weaknesses that you addressed as well, Mika. I'm going to talk about the capacity expansion across segments, and I've been telling you about, well, mining operations, but also the plans that it has in terms of power, and that perhaps can be, you know, a big opportunity there. Announcements of further projects and, of course, expansion in them as well, and that could potentially give the growth that the company so far has lacked. In terms of threats, again, it will be exposure to fluctuating fuel prices. This is always a problem with the entire sector, and NLC India is no different here. There is increasing competition from private players, especially in the renewable space, and that's a big area to keep an eye on. Land acquisition again becomes a little bit of a challenge considering the kind of traction that we're seeing in property prices, and of course, delay in realization of dues from discoms. That's a big one, isn't it? Because that's where we have a considerable amount of weakness, not just for companies like NLC India, but also several other larger players like something like an NTPC for that matter. But on that note, Mika, I'm just going to end by asking you very quickly about the company's capex plans, because I do believe that they have very aggressive capex plans here.
That's right, very aggressive. Their installed capacity is expected to rise three times by FY30. They have laid out and proposed a capex of 1.25 lakh crore until 2030. In terms of allocations, if you go to see, the thermal segment is allocated 53,000 crore, renewables is allocated 45,918 crore, while mining is allocated around 15,000. And, you know, across their different portfolios, which is power, thermal as well as renewables, they have different targets.
What's the road ahead in terms of capacity expansion?
Again, in terms of the road ahead, we are keeping an eye on, well, the power portfolio, which is looking at about 20 GW in terms of power generation by FY30, and they're certainly looking to expand, well, the renewable capacity as well, expected to go at well over 10,000 megawatts from the current 1,400. Moving on to the thermal capacity as well, that they have plans for expansion. But I'm going to talk very quickly about mining too. That's where the mining projects worth about 53 million tons are in the pipeline. That's the big positive, and they're looking to increase the capacity and double the capacity by 2030. So that's what we have in terms of all the plans which are on the anvil.
But on that note, Mika, I'm going to thank you for joining me and taking us through and giving us all that insight with respect to the company going forward. But let's take this conversation forward also with Rupesh, the Vice President of Research at Tara Capital, who actually tracks NLC India as well. Rupesh, good afternoon and thanks for joining in. Let's start off with your analysis, your view on NLC India. What's the way forward here, and how are you rating this company?
Yeah, good morning. Definitely, the company has entered into renewable space as well as capacity addition on the thermal side. Earlier, the company was facing a lot of issues in terms of land acquisition, so they had a lot of under-recoveries, around 600-700 crore per annum basis. Now, what we understand is that there is still under-recovery we are expecting for FY25 because of a modification which is happening on the thermal side. But on the lignite mining side, there's no under-recovery as such. So by FY26, we can expect significant reduction in their under-recoveries. And now the Ghatampur plant phase one is already commissioned. I think the entire capacity will get commissioned by March '25. Then Pachhwara coal mine is getting commissioned in March '25. And other than that, the renewable capacity addition, then Talab project is close to 2.4 GW. So, and given the strong regulated cash flow from their existing operational assets, I think the equity contribution will be significant from the existing operating cash flows. So in terms of capacity addition, target from 7 GW to 20 GW is quite achievable, and it's a mix of regulated assets, backward integration in terms of fuel cost, complete pass-through, as well as renewable capacity addition. I think the company is well placed in terms of growth. And in terms of valuation, I think it's trading at 1.7 times price-to-book value based on FY27 estimates. I think it's at a fair discount to other players in the similar business profile. So we are positive on NLC at the current market price, and our fair value comes to around 380 rupees from the current levels.
