Avocados Are Healthy—Even For This Stock

Indian ferro alloys manufacturer Nava Ltd. has seen its stock surge 180% year-to-date and 204% in the past year itself.

While the company's ferro alloys segment has always been a key growth driver, the latest surge comes on the back of its foray into the avocado plantation business as well as mining and power segment.

Business

Established in 1972, formerly known as Nava Bharat Ventures Ltd., the company is an Indian ferro alloys manufacturer, operating in the country, with presence in South East Asia and Africa as well. The company is also engaged in the business of power, mining, healthcare as well as agribusiness.

As of fiscal 2024, the company had a ferro alloys capacity of 1.75 lakh million tonnes per annum, and a collective power generation capacity of 734 megawatts. Its subsidiary Maamba Collieries Ltd., in which it holds 65% stake, is Zambia’s largest coal mine concessionaire, covering an area of 80 square kilometer.

Debt

The company, as well as its subsidiaries Maamba Energy and Nava Bharat Energy, have completely paid their debt as of fiscal 2024. This translates to significantly reduced interest costs for the company going forward, as per the management. The company's consolidated debt to equity ratio stood at 0.1 in fiscal 2024, compared to 1.0 in fiscal 2020.

The company has also stated that Nava will remain debt-free from here on, while it's foreign step down subsidiary, Maamba Energy, may carry some debt for its phase II expansion.

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These segments drive growth for Nava:

Agribusiness

Nava Avocado Ltd., a 100% subsidiary of the company, is establishing a large avocado plantation in Africa, aiming to plant over 4 lakh trees by 2027 for global export. As of first quarter of fiscal 2025, 91,500 plants are in the ground, with another 1 lakh planned for November 2024 and an additional 1 lakh expected by March 2025.

The management expects commercial revenues from the avocado yields within the next two years and aims to capitalise on the high demand for the fruit. As per the OECD/FAO Agricultural Outlook 2021-2030, avocados are expected to become the second most traded major tropical fruit by 2030.

The company expects revenues around $3-4 million from Avocado products in fiscal 2026, with peak revenue anticipated from 2027-28 onwards.

Energy

The company's Zambia-based power subsidiary Maamba Energy has a unique advantage of being the only thermal energy producer in the country, making it an indispensable asset for the African country.

The company has a total operational installed capacity of 300 MW, accounting for 9% of Zambia’s total installed energy generation capacity. It is also set to start working on the phase II brownfield expansion of the 300 MW power plant.

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Mining

Nava operates Zambia’s largest coal mine, via subsidiary Maamba Energy, supplying coal to marquee clients, including Lafarge, and Dangote. The total reserves of the company stands at 193 million tonnes, providing a consistent source of cash flow. The company plans to significantly ramp up its external sale of coal from the present rate of 40,000 tons per month in the next 12-15 months.

The company's step-down subsidiary in Zambia, Maamba Collieries Ltd., was issued two large-scale exploration licences in July 2024. The licences pertain to Lithium and other minerals like Amethyst, Aqua Marine, Tantalum and Tin, and are valid for a four-year period. The company will be carrying out a detailed exploration of the 8,200 hectares licence area to ascertain the mineable resources and to prepare an appropriate business plan for implementation.

Q1 FY25 Results

In the first quarter of fiscal 2025, the company's consolidated revenue grew 17.3% year-on-year to Rs 1,222 crore, compared to Rs 1,042 crore.

Net profit was up 30% at Rs 446 crore in the first quarter, against Rs 343 crore in the same period last year. Its Ebitda was up 10% at Rs 590 crore, compared to Rs 536 crore in the first quarter of fiscal 2024.

Revenue growth in the first quarter was mainly led by the power segment, which saw a 19.19% year-on-year growth. This segment accounted for around 68% of the company's total revenues during the quarter.

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Valuations

Due to the stock surge, the company's current price to earnings ratio stands at 19.62, which is higher than the valuations of 3.42 at the end fiscal 2023.

Current valuations also stand much lower than the five-year average of 6.2.

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