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Friday, April 10, 2009

Neyveli Lignite Corporation Ltd:-A safe defensive bet

Scripscan:Neyveli Lignite Corporation Ltd
Traded in:Nse-bse

Story:As of now I reiterate my‘hold rating on Neyveli Lignite Corporation (NLC).However, any decline in the share price from the current level will be a good buying opportunity. NLC inked a memorandum of understanding (MoU) with Northern Coalfields to set up a 1,000-mw pit-head power station worth Rs 5,200 crore at Gorbi mines in the Singrauli coal fields. Moving ahead with regard to its capacity expansion plans, NLC is also holding talks with Mahanadi Coalfields (MCL) to set up a 2,000-mw pit-head power unit at Vasundhara mines in the IB Valley coalfields.With the increased energy deficit in NCL’s customer states, demand risks for the company are minimal. Moreover, NCL draws sustainable competitive advantage from its competitive capital cost, low variable cost of generation, and easily available lignite. However, lignite being a low-grade coal suffers from the disadvantage of lower plant load factor (PLF), thus resulting in reduced generation. To overcome these disadvantages and to improve PLF, the company is foraying into coal-based power plants, with the first one in Tuticorin of 1,000 mw, expected to be commissioned by FY10-12.These companies are not play on valuations but on future prospects and outlook.Keep accumulating the company at dips.

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