July 21, 2024
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Stock Market

How does the Future Growth of Nava Limited Look Like and Will the shares cross ₹850 Again?

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Stock Market

How does the Future Growth of Nava Limited Look Like and Will the shares cross ₹850 Again?

When organic growth slows, most organizations throughout the world search for inorganic possibilities to continue growing. Diversification into diverse market areas is a strategic method that helps firms continue growth while efficiently mitigating risks. Companies that extend into other categories might generate additional revenue and minimise their reliance on a particular market. This diversification strategy distributes business risks across multiple industries or client bases, protecting the organization against downturns in any single area.

Furthermore, entering new categories helps businesses benefit from future trends, technology, or customer behaviours that their existing offers may not fully cover. This proactive strategy not only encourages innovation, but it also improves the company’s adaptability in a rapidly changing business environment.

Maintaining a balance between existing activities and new endeavors is critical to ensuring that diversification efforts benefit overall growth and profitability. Finally, strategic diversification allows businesses to achieve long-term growth while reducing risks associated with market instability or industry-specific issues. In this article, we will look at Nava, which is a diversified conglomerate and let us look at their plans.

Company Overview Of Nava

Nava, established in 1972 as an Indian manufacturer of ferro alloys, has grown into a diverse group with interests spanning metals manufacturing, power generation, mining, agribusiness, and healthcare. They employ over 1,000 people across operations in India, Southeast Asia, and Africa.

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In 2010, Nava expanded their footprint in Africa by acquiring a 65% stake in Maamba Collieries, Zambia’s largest coal mine operator. This acquisition paved the way for the construction of a 300 MW power plant in Zambia, significantly bolstering the country’s electricity production. Today, this plant contributes a substantial 10% to Zambia’s total installed power generation capacity.

Industry Outlook

Power is generated from a range of sources, including fossil fuels such as coal and oil, as well as renewable energy sources such as wind and solar. Coal, oil, and natural gas dominate electricity generation, accounting for almost 65% of the worldwide energy mix.

The installed base of the India Power Market is estimated to rise from 492.86 gigawatts in 2024 to 752.90 gigawatts by 2029, at an 8.80% CAGR over the forecast period (2024-2029).

Over the long term, the market is likely to be driven by factors such as supportive government policies, increased power demand as a result of infrastructure projects, and a rising population.

In 2023, the ferroalloys market was valued at USD 147.3 billion. The ferroalloys industry is expected to expand from USD 156.37 billion in 2024 to USD 204.2 billion by 2032, representing a compound annual growth rate (CAGR) of 5.60% over the forecast period (2024-2032).

India is a major exporter of ferroalloys, but demand for these commodities has fallen due to the rapid collapse in the steel industry. Despite the uncertainties, the market has been somewhat profitable in 2022 as a result of the pandemic’s recovery, and all mining sites are fully operational.

Nava’s presence in Zambia with private – public partnership

Indian companies are increasingly looking for opportunities in African countries in a variety of sectors, including infrastructure, technology, healthcare, and agriculture. The African continent represents a vast market with untapped potential and rising demand for a variety of goods and services. Indian firms have been leveraging their expertise in these fields to partner with local businesses and governments, contributing to economic growth and development in the region.

This collaboration not only fosters bilateral trade relations but also facilitates knowledge transfer and skill development. Similarly, Maamba Collieries parent company owns the majority of the company, and the government of Zambia also owns a stake in it. The public-private partnership will benefit both parties by promoting economic growth.

In Zambia, the electricity sector has faced challenges, including infrastructure deficits and supply reliability issues. Nava has played an important role in addressing these issues through its operations at Maamba Collieries Limited (MCL).

MCL operates a thermal power plant in Zambia, contributing to the country’s electricity generation capacity. By investing in modernising and expanding infrastructure. The company, through its subsidiary, has a significant presence in Zambia. However, hydropower accounts for approximately 80% of Zambia’s total power production.

This creates more opportunities because energy generation from hydropower is unstable when there is less monsoon. This initiative underscores India’s commitment to sustainable development in Africa through strategic investments in critical sectors like energy.

Financial Overview and Segments Of Nava

In FY24, Nava reported revenue from operations of Rs. 3,818 crore, up 8.21% year on year from Rs. 3,528 crore in FY23. Net profits in FY24 were Rs. 1,256 crore, a marginal improvement from Rs. 1,220 crore in FY23.

The majority of Nava’s expenses come from the cost of materials, which accounts for approximately 30% of revenue. Nava estimated Rs. 282 crore in credit losses for FY24, taking into account the potential losses that could occur as a result of uncertainties. There was an exceptional item of Rs. 115.8 crores in FY24, which was a claim amount from an insurance company for MCL.

In FY24, Nava’s revenue is primarily derived from Power (63.33%), Ferro Alloys (18.30%), Mining (9.39%), and others (8.98%). Power accounts for the vast majority of net profits, while the ferro alloys segment is losing money. Other segments make profits in the range of 30% to 50%.

Nava’s problem with Zesco through Maamba Collieries

As every company records its sales on an accrual basis, even though the company is making consistent net profits, it is based on recording the transactions. Looking at Cash Flows, analysing the trends of trade receivables would provide more insights into the actual cash received by the company.

One of Maamba’s debtors was Zesco, a state-owned company dealing in the power sector in Zambia. The company went to court and they awarded $518 million for which Zesco had to pay $338 million by December 2023 and the remaining $180 million by December 2024.

Can debt reduction pave the way for the company?

After a prolonged period, the subsidiary Maamba Colliers won the arbitration award, which can open further avenues for the company to go debt-free. In a recent transcript, the company’s management stated that clearing the debt would release them from the covenants that had restricted the company’s ability to make decisions.

Before considering any corporate actions, the company must obtain approval from its lenders. Now with debt-free status, the company is planning to spend on Capex around $700 million in the form of equity and debt.