Elara Securities reaffirms 'Buy' rating on NLC India; here's why

Elara Securities in its latest note on NLC India said the company clocked an 8 per cent year-on-year increase in revenue for fiscal year 2025, reaching Rs 3,800 crore. This growth was largely driven by a 9 per cent rise in power generation revenue, compensating for an 8 per cent decline in mining revenue, it said. Despite these gains, the brokerage noted that NLC India saw a significant drop in profit before tax, down by 79 per cent due to increased depreciation and interest expenses.

Elara Securities believes NLC India is poised for sustained growth, supported by strategic investments and effective cost management. Expansion initiatives and a solid financial outlook justify the optimistic 'Buy' stance, with expectations of revenue and EBITDA compound annual growth rates of 14 per cent and 25 per cent, respectively, over the coming years.

Looking forward, NLC India's regulated equity is projected to nearly double from Rs 9,710 crore to about Rs 18,320 crore by FY30. This growth underscores the company's long-term financial potential. Elara Securities maintains a 'Buy' recommendation with a target price of Rs 320, reflecting confidence in NLC India's future prospects.

The company's valuation reflects a 1.8x price-to-book ratio for its thermal and mining businesses. Its renewable energy business is valued at 12x FY27E enterprise value-to-EBITDA, while the merchant coal business is assessed at 4x FY27E EV/EBITDA. These valuations support the continued 'Buy' recommendation and indicate potential for robust returns, Elara Securities said.

Elara said the company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) improved significantly, rising by 43 per cent year-on-year to Rs 860 crore. However, higher depreciation costs, up by 26 per cent, and a 63 per cent increase in interest expenses were major contributors to the profit before tax decline, which fell to Rs 91.5 crore.

Operationally, NLC India achieved a 2.8 per cent year-on-year increase in power generation, totalling 2,800 crore units. Moreover, coal production surged by 36 per cent, hitting a record high of 1,720 lakh tonnes, while lignite production rose by 1.6 per cent. The company also reported a substantial capital expenditure of Rs 7,700 crore, an 81 per cent increase from the previous year, underscoring its expansion efforts.Significant capacity expansion was noted with the commissioning of the 660MW Unit 1 of the Ghatampur thermal plant during FY25. Plans are in place to commission Units 2 and 3 by July and October 2025, respectively. The South Pachwara coal block is expected to start operations by July 2025, with the Talabira thermal project's first unit slated for completion in March 2029.