nmdc - conference call update - 14 october 2013 +longtermgrp++ nb

7/27/2019 NMDC - Conference Call Update - 14 October 2013 +Longtermgrp++ NB

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Institutional Equities

ConferenceCallU

pdate

Reuters: NMDC.BO; Bloomberg: NMDC IN

NMDC

Likely to Achieve FY14 Volume Guidance; Up TP, Retain BuyWe organised a conference call with Mr S. K. Das, director-commercial, NMDC,to discuss the iron ore demand scenario and pricing outlook. Mr Das said NMDCremains certain of attaining its 30mt FY14 volume guidance, despite a Rs100/tnhike in the prices of lumps and fines at Rs4,300/tn and Rs2,610/tn, respectively.We have revised our EBITDA estimates upward by 12%/10% for FY14/FY15,respectively, driven by improvement in volume and realisation. Consequently,we have revised our TP upwards by 7% - from Rs147 to Rs158 - driven byearnings upgrade and revision in the multiple from 4.5x FY15E EV/EBITDA to4.8x FY15E EV/EBITDA. Our target price is 21% above the CMP and therefore wehave retained our Buy rating on NMDC. Following are the other highlights:

Price hike after a span of one year: NMDC increased its prices after a span of oneyear because of steel prices strengthening in the domestic market. However, themanagement indicated that as steel prices have started softening, by way of discounts,NMDC increased the prices of lumps and fines by only Rs100/tn each. Themanagement believes this hike is sustainable in nature.Production despatch update: NMDC sold 13.75mt of iron ore in 1HFY14, comprising4.42mt from Donimalai mine, Karnataka, and 9.33mt from Bailadila mine, Chhattisgarh.The management indicated that NMDC is very much on track to achieve its 30mt off-take target for FY14. Production is likely to be lower versus despatches in 2QFY14 asheavy rains hurt production during the quarter. However, NMDC normally keeps aninventory of around 2mt, which is believed to have been partially offloaded in 2QFY14.

Rake availability improving: The management stated it has fair visibility of NMDCobtaining 16-17 rakes/day in the Bailadila region in FY14 as compared to 11.8rakes/day in FY13. Higher rake availability is the primary reason behind the companysconfidence on its 30mt FY14 off-take target without the support of a slurry pipeline.NMDCs uniflow system and in-motion weigh bridge have started showing positiveresults. The management also sounded confident of NMDC obtaining 20 rakes/day inFY15E. As much as 80% of rail despatches are through the Kothavalasa Kirandul (KK)rail line and the company is getting good support from the Indian Railways.Reserve accretion likely at Donimalai mine: NMDC currently has 25mt of iron orereserves at Donimalai mine, which as per the CEC s (Central Empowered Committee)recommendation, results in 1.25mt production limit per annum. However, the companybelieves that it can add 80mt-90mt reserves through organic exploration and thereforeit has submitted a revised mining plan to the Indian Bureau of Mines (IBM) for its

approval. Post approval, NMDC would have 5mt production limit for the Donimalaimine and it expects around 5mt production from the Kumaraswamy mine.Lump exports at just 30,000tn-40,000tn in 2QFY14: NMDC primarily focuses onexport of fines, as the export of lumps leads to higher losses compared to export offines. NMDC indicated that it exported only 30,000tn-40,000tn of lumps in 2QFY14compared to 140,000tn in 1QFY14. The company s realisation stood at Rs2,000/tn incase of fines in 2QFY14 compared to Rs2,510/tn in the domestic market.

BUY

Sector: Mining

CMP: Rs130

Target Price: Rs158

Upside: 21%

Giriraj [email protected]

+91-22-3926 8168Sumit [email protected]+91-22-3926 8111

Key Data

Current Shares O/S (mn) 3,964.7

Mkt Cap (Rsbn/US$bn) 515.6/8.4

52 Wk H / L (Rs) 192/93

Daily Vol. (3M NSE Avg.) 3,422,582

One Year Indexed Stock Performance

Price Performance (%)

1 M 6 M 1 Yr

NMDC 4.2 3.7 (31.1)

Nifty Index 4.5 10.6 7.7

Source: Bloomberg

Y/E March (Rsmn) FY11 FY12 FY13 FY14E FY15E

Revenue 113,689 112,615 107,043 118,638 122,011YoY (%) 82.2 (0.9) (4.9) 10.8 2.8

EBITDA 86,465 89,281 73,780 73,359 74,318EBITDA (%) 76.1 79.3 68.9 61.8 60.9

PAT 65,005 72,654 63,424 61,484 61,354

EPS (Rs) 16.4 18.3 16.0 15.5 15.5YoY (%) 88.6 11.7 (12.7) (3.1) (0.2)RoE (%) 33.8 29.8 23.1 20.2 18.4RoCE (%) 33.8 29.8 23.1 20.2 18.4

P/E (x) 7.9 7.1 8.1 8.4 8.4EV/EBITDA (x) 4.0 3.5 4.1 4.3 4.5Source: Company, Nirmal Bang Institutional Equities Research

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Oct -1 2 D ec-12 F eb -1 3 A pr -1 3 Ju n-13 Au g-13 Oct -1 3

NMDC LTD NSE CNX NIFTY INDEX

14 October 2013


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Orissa market update

Iron ore export booking has started to decelerate following an ~12% appreciation of the Indian rupee againstthe US dollar in the past one month. However, the management does not foresee any price cut by players inOrissa. It indicated that all players in Orissa cut iron ore prices by Rs300-Rs400/tn for August 2013, whileonly three players i.e. Rungta, Essel Mining and Sirajuddin increased their prices by Rs200/tn each at thebeginning of September 2013. Considering this environment, NMDC took a decision to hike prices by

Rs100/tn, which is likely to sustain.Essar Steels CDR not a major threat

NMDCs management doesnt foresee a downside risk to the iron ore volume from Essar Steel , which isundergoing CDR (Corporate Debt Restructuring). Essar Steel would prefer to export pellets from its Vizagpellet unit, in case it faces the prospect of low capacity utilisation at its steel plant in Hazira, Gujarat.

Product mix stable

Lumps and fines proportion in overall volume was stable in 2QFY14 at 36% and 64% respectively. However,the proportion of lumps is believed to be below 36% in Karnataka due to lower off-take.

Change in our earnings estimates

We have changed our earnings estimates after revising our volume and realisation estimates. We have

revised our volume estimates upward by 7% for FY14/FY15 each after a strong outlook from themanagement. We have also revised our realisation estimates upward after factoring in the recent price hikeand our revised rupee-US dollar assumption. The improvement in realisation looks steep as we hadestimated lower prices in 2HFY14, while the company announced a price hike for the same period. We havefactored in higher costs because of the incorporation of SPVs (special purpose vehicle) contribution inKarnataka to the tune of 10% of revenue. We have also incorporated the recent annual report numbers,which led to reduction in other income because of higher working capital deployment. Therefore, despitestrong EBITDA performance, our PAT estimates stand revised only marginally upward for FY14/FY15.

Exhibit 1: Change in our earnings estimates

DescriptionEarlier assumptions New assumptions Change (%)

FY14E FY15E FY14E FY15E FY14E FY15E

Operational detailsIron ore volume (mt) 28.0 30.0 30.0 32.0 7.2 6.7

Realisation (Rs/tn) 3,489 3,392 3,902 3,764 11.8 11.0

Realisation (US$/tn) 59.6 60.0 64.5 63.2 8.1 5.2

Financials (Rsmn)

Net sales 98,321 102,391 118,638 122,011 20.7 19.2

EBITDA 65,694 67,614 73,359 74,318 11.7 9.9

PAT 59,745 61,252 61,484 61,354 2.9 0.2

Source: Company, Nirmal Bang Institutional Equities Research

Rating trackDate Rating Market price (Rs) Target price (Rs)

24 June 2011 Sell 252 208

1 August 2011 Sell 245 196

8 August 2011 Sell 247 222

9 January 2012 Sell 172 154

29 May 2012 Hold 168 171

10 July 2012 Hold 194 206

22 August 2012 Buy 181 215

4 October 2012 Hold 194 215

8 November 2012 Hold 182 197

12 December 2012 Buy 147 192

26 February 2013 Buy 143 194

30 May 2013 Buy 117 164

4 July 2013 Buy 100 147

14 October 2013 Buy 130 158


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Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

HOLD 0-15%

SELL < 0%

This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated byChinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorisedrecipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general informationfor the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.

We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historicalinformation, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may besubject to change from time to time without notice.

Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients ofthis material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons

including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/sfrom any inadvertent error in the information contained, views and opinions expressed in this publication.

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nmdc - conference call update - 14 october 2013 +longtermgrp++ nb

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