Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Nava Ltd (Nava).

 

CRISIL Ratings has withdrawn its rating on rupee term loan of Rs 185 crore at the company’s request as there is no outstanding against the rated amount. The withdrawal is in line with the CRISIL Ratings withdrawal policy.

 

The ratings continue to factor in the strong financial risk profile and healthy operating performance of the company in fiscal 2024. The revenue increased from Rs 1,793 crore in fiscal 2023 to Rs 2,252 crore in fiscal 2024 and earnings before interest, taxes, depreciation and amortisation (Ebitda), while still healthy, reduced from Rs 428 crore to Rs 387 crore. On a segmental basis, the ferroalloy segment witnessed subdued performance and recorded Ebitda loss of Rs 59 crore in fiscal 2024 due to issues such as low realisations and plant shutdowns. Nonetheless, this was offset by the power division, which saw robust revenue and profitability owing to higher plant load factor (PLF) and higher tariffs in the merchant market. Furthermore, operations and maintenance (O&M) income from services provided to Maamba Energy Ltd (MEL; earlier, Maamba Collieries Ltd), a stepdown subsidiary of Nava, also provided stable cash flow. 

 

In the first half of fiscal 2025, the company’s ferroalloy segment witnessed a revival in profitability with absolute Ebitda of Rs 40 crore and Ebitda margin of ~10% due to higher realisations in silico manganese, which is the company’s primary product in the ferroalloy segment. Additionally, the power segment continued its robust performance with healthy PLF and realised tariffs.

 

The company plans limited capital expenditure (capex) in its ferroalloys and power businesses in India. However, it plans multiple projects in its overseas subsidiaries, including power plant expansion under MEL from 300 megawatt (MW) to 600 MW, agri-business (avocado plantation) in Zambia, and manganese ore mining in Ivory Coast. These are expected to be funded through internal accrual. CRISIL Ratings understands that debt raised for these plans will be non-recourse to Nava and its balance sheet will not be leveraged.

 

These strengths are partially offset by the company’s susceptibility to cyclicality in the alloy segment, fluctuations in power realisations and coal prices, and offtake risk in the merchant power segment given the absence of long-term power purchase agreements (PPAs).

 

Furthermore, CRISIL Ratings notes that the overall financial position of Nava’s stepdown subsidiary, MEL, has improved. MEL had entered into an arbitration with Zambia Electricity Supply Corporation Ltd (ZESCO, the state discom of Zambia) for resolving its receivables issues (pertaining to generation prior to May 2022). The arbitration was ruled in favour of MEL and out of the arbitration award of $518 million, MEL has received $328 million by November 2024. While there is some delay in receiving the payouts, the company expects to receive ~$30 million each quarter. Furthermore, the subsidiary continues to receive timely payments for generation from May 2022.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Nava, Nava Bharat (Singapore) Pte Ltd (NBSPL), Nava Bharat Energy India Ltd (NBEIL), Nava Bharat Projects Ltd (NBPL), Nava Energy Pte Ltd (NEPL) and Nava Energy Zambia Ltd (NEZL), on account of their strong operational, financial and managerial linkages.

 

CRISIL Ratings has not combined the business and financial risk profiles of other subsidiaries of Nava and NBSPL as they are moderately integrated and their project debt is non-recourse. In addition, the management has articulated that Nava will not support these subsidiaries in debt servicing. CRISIL Ratings has, however, factored in equity investment in some subsidiaries/step-down subsidiaries, including Brahmani Infratech Pvt Ltd, Kawambwa Sugar Ltd (Zambia), MEL, and Compai Pharma Pte Ltd. Any change in the management policy regarding support to these companies will be a key rating sensitivity factor.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Business risk profile supported by healthy operational performance: Performance of the ferroalloy segment was subdued in fiscal 2024 due to issues such as lower realisations and plant shutdowns. However, the segment’s performance turned around in the first half of fiscal 2025 because of higher realisations and increased share of exports. In the power segment, healthy PLF and merchant tariff of ~Rs 7 per unit resulted in the segment reporting healthy performance. NBEIL’s power plant witnessed a marked turnaround with its PLF increasing from 18.8% in fiscal 2023 to 63.7% in fiscal 2024. The performance of the power segment remained strong in first half of this fiscal led by improvement in PLF and continued healthy merchant tariff rates.

 

The operating margin should remain healthy, given the semi-integrated operations (for alloy segment) with linkages for coal procurement for captive use. Also, CRISIL Ratings understands Nava is looking to increase the share of exports (which fetch higher realisations) in its sales mix. This, along with the favourable outlook for merchant power tariffs, should result in healthy cash flow. However, any material deviation in this understanding, resulting in significantly lower-than-expected cash accrual, will be monitorable.

 

• Semi-integrated ferroalloy operations: The 125,000-TPA (tonne per annum) silico manganese facility in Telangana is supported by a 114-MW captive power plant, while the company’s 55,000 TPA silico-manganese capacity in Odisha is backed by a 90-MW captive power plant. Both the power plants have linkages for coal and ability to sell excess power on the exchange after meeting captive norms. This insulates the company from fluctuations in the spot market for coal and ensures steady supply for its alloy operations.

 

• Healthy financial risk profile: The financial risk profile is supported by negligible debt on the company’s balance sheet and robust cash balance. The company had a positive net cash balance (total cash and cash equivalents – total debt) of Rs 618 crore as of March 2024. Its leverage is expected to remain comfortable over the medium term, in the absence of any significant capex in the ferroalloy and power businesses. Planned capex in its overseas subsidiaries is expected to be funded through internal accrual and debt raised will be without any recourse to Nava. However, any larger-than-expected capex or investment in new business segments, resulting in increased debt or weakening of capital structure, will remain monitorable.

 

Weaknesses:

• Susceptibility to cyclicality in the alloys segment: Silico manganese is used as an intermediate in the steel industry, which is inherently cyclical and highly sensitive to shifting business cycles, interest rates and seasonal changes in demand and supply conditions. Furthermore, the Indian ferroalloys industry is intensely competitive.

 

• Fluctuations in power realisations and coal prices for the merchant power segment: While captive power for the ferroalloy business provides stability to cash flow, the merchant power sales are exposed to PPA and offtake risks. Excess power generated in the captive units (204 MW at Telangana and Odisha) and merchant power (capacity of 210 MW; 150 MW under NBEIL in Telangana and 60 MW under Nava in Odisha) is sold through short-term PPAs and on the exchange market. The absence of long-term PPAs exposes the company to offtake risk and volatility in exchange prices. Also, the company procures coal for these capacities through e-auctions. While the merchant power capacity can blend various grades of coal, thereby rationalising cost, input prices remain susceptible to vagaries in the coal spot market.

Liquidity: Strong

Cash and equivalents were healthy at Rs 636 crore as on March 31, 2024. Cash accrual is expected to be Rs 200-300 crore each in fiscals 2025 and 2026 against negligible debt obligations. The company does not plan any significant capex in its ferroalloys and power businesses in India over the medium term, except for regular maintenance. The capex in overseas subsidiaries (manganese ore and agri-business) is expected to be funded through internal accrual and debt (which will be without recourse to Nava). Liquidity is also supported by low fund-based bank limit utilisation of 5% (over the 12 months through July 2024). Internal accrual, cash and equivalents, and unutilised bank limit should be sufficient to meet debt obligation, planned investments and incremental working capital requirement over the medium term.

Outlook: Stable

Nava will maintain its comfortable financial risk profile and strong liquidity over the medium term, supported by healthy cash balance and sustenance of robust operating margin.

Rating sensitivity factors

Upward factors

• Improvement in business risk profile reflected in improved PLF in the power segment supported by long-term PPAs or healthy merchant sales
• Significantly better-than-expected operating performance with sustenance of operating margin over 20% resulting in material free cash to support debt servicing, and improved return on capital employed

 

Downward factors

• Significantly weaker-than-expected operating performance with lower volume in the silico manganese business or lower-than-expected merchant power sales resulting in operating profitability declining below 14% on a sustained basis
• More-than-expected investment in other ventures/subsidiaries, resulting in increased debt

About the Company

Nava was incorporated in 1972 as Nava Bharat Ferro Alloys Ltd and was promoted by Dr D Subba Rao. His son, Mr D Ashok (Chairman), has been the non-executive chairman since September 2024. The sons of Mr D Ashok — Mr Ashwin Devineni and Mr Nikhil Devineni — now manage the operations of the Nava group.

 

Nava began operations in 1975 with a small ferrosilicon manufacturing unit at Paloncha in Telangana. In 1997, it set up a second ferroalloy unit in Odisha. It diversified into coal-fired power generation in 1997 as backward integration for its highly power-intensive ferroalloy business, and later pursued the merchant power business for the surplus generation. It now has installed alloy capacity of 180,000 TPA and power generation capacity of 264 MW (at standalone level).

 

NBSPL was incorporated in 2004 to trade Nava's ferroalloy products, and later became the holding company for the group's investment in MEL. NBSPL acquired 65% stake in MEL in Zambia. MEL set up a 300-MW coal-based power plant with 35% equity participation from an investment holding company of the Government of Zambia. Coal production commenced in fiscal 2013 and the power plant began operations in August 2017.

 

NBEIL is a stepdown subsidiary of Nava and operates a 150 MW thermal power plant in Telangana. Nava took over the term debt obligation of NBEIL in fiscal 2019 by borrowing a similar amount and extending an inter-company loan to the latter. NBEIL repaid the long-term loan to Nava in May 2024. NBEIL is long-term debt free now and only has working capital facilities of Rs 70 crore. NBEIL sells power through short-term PPAs and on the exchange.

 

NBPL is a wholly owned subsidiary of Nava, providing technical and commercial services to the group companies. It holds 74% stake in NBEIL.

 

NEPL is a wholly owned subsidiary of Nava and has strong financial linkages with the parent. Nava has extended performance guarantee on behalf of NEPL to MEL. Also, Nava regularly receives dividend income from NEPL.

 

NEZL is a wholly owned subsidiary of NEPL and receives O&M services-related income from MEL.

Any other information: Not Applicable