NCL: ‘Buy’ on a higher dividend income from NCPL
Nishat Chunian Power Limited (NCPL) conducted a
conference call yesterday to discuss the progress of
its power plant and the future outlook. NCPL’s
200MW power plant was expected to come online by
the end of March, but due to some technical issues
on the part of EPC’s contractor Wartsila, the
Commercial Operations Date (COD) has been
postponed to mid-end May, 2010. However, Wartsila would
be liable to pay a daily penalty of €66k post Mar 31, 2010 until
the commissioning date capped at €13mn. This would provide
NCPL with the necessary cushion against its debt financing
expense as 80% of the project is funded via debt.
Dividend payout of Rs450-500mn in FY11
The management of NCPL informed that the company
expects to start paying dividends from FY11, with a payout of
Rs450-500mn (80-90%), on projected earnings of Rs500-
600mn. In light of the new information disclosed by NCPL’s
management, we have revised our dividend income
projections and valuation for Nishat Chunian Limited (NCL).
NCL valuation target upgraded 9% to Rs24
We had initially estimated NCPL to start paying dividends
from 2HFY12, with a payout of 75-80% for the entire project
life. However, after the conference call, we have raised the
payout ratio to 85% with a full year dividend payout for FY12.
This would translate into a dividend income of Rs254mn for
NCL, as it has a 57.8% stake in NCPL. Resultantly, our
valuation for NCL has risen by 9% (Rs2 per share) with our
new SOTP target price of Rs24. We have valued the textile
business at Rs14 per share, while the power segment would
contribute Rs10 per share (Rs8/share earlier).
Investment case: Buy NCL & divest from NCPL
Based on the preliminary estimates, the price of NCPL which
is currently trading at Rs9.85, has been duly incorporated in
our valuation at Rs6. Hence, we advise investors to divest
their holdings in NCPL and instead take exposure in NCPL
via NCL. The investment case offers the perfect arbitrage as
apart from providing exposure to NCPL at a deep discount,
investors also get to enjoy the upside potential of NCL.
NCL: Upgraded to ‘Buy’
Based on the information revealed by NCPL’s management,
we have upgraded our earnings and valuation estimates for
NCL, with a revised target price of Rs24. In addition, the
recently announced mark up facility, declining cotton prices
and the government’s renewed efforts for wider market
access in EU and US strengthens our confidence in the textile
business of NCL. Trading at FY11F PBV of 0.7x, we have
upgraded our stance on NCL from ‘Accumulate’ to ‘Buy’.