nmdc q4fy14ru_sunidhi030614

8/11/2019 NMDC Q4FY14RU_sunidhi030614

1/5

Sunidhi Research|

NMDC LValuations nearing fair v

NMDC Q4FY14 results were broadly in line with our estimates. We exp

Revenue/Ebidta/PAT of `36bn/24bn/21bn against which company rep

38bn/25bn/19bn. Blended NSRs stood at `3991/tonne, which were in line wit

estimates. We expected higher ralizations i) from Chattisgarh due to price hike t

by the company, and ii) higher auction premium in Karnataka. How

EBIDTA/tonne was marginally disappointing due to higher expenses like emp

costs etc. We believe NMDC is in a sweet spot given acute shortage of iron o

domestic market. Price cuts look quite distant from here on despite

international prices. We are structuraly very positive on Indian resource stocks ag

the pure converters. Post strong run up of the stock price we maintain our Ne

rating on the stock despite increasing our valuation multiple to 6x from 5x earli

FY16E EV/EBITDA basis with a target price of `190.

Volume growth on course with domestic shortage and ESSAR pip

commissioning

NMDC reported 9.62mnt volumes in Q4FY14,17% higher YoY. Such remarkable gr

in volume has set the tone right for NMDC. IT has ramped up its volume afte

restart of Essar pipeline during Q4FY14. The company had earlier guided for a vo

of 32- 35 mt for FY15, which should not be a problem assuming there won t b

major disruption in this pipeline again. Also, the company has been ramping u

volume in Karnataka. In addition, the recent ban on 26 mines including 16 mer

mines in Odisha has created an opportunity for NMDC to supply to various end

in and around Odisha and Chhattisgarh.

Domestic Price outlook stronger albeit weak international prices

West coast steel mills in India could resort to import substitution for iron o

landed cost for imported iron ore lumps is c.USD106/t compared to USD111/

NMDC ore. However sudden demand from eastern coast and central Indian

would tempt NMDC not to cut its ore prices in near term. Closure of 26 minOdisha, particularly merchant miners closure would help NMDC to not matc

falling international prices. Though fines still continue to trade at discount, thus w

not foresee any reduction in ore prices by NMDC over near term. However pric

looks bit aggressive as NMDC may not allow import price gap to widen.

Valuation and Recommendation

We maintain our positive stance on the company and continue to believe its dom

position in iron supply especially in restricted iron ore supply market domest

However recent run up in stock price seems to discount much of the posi

Additionally capital allocation to steel plant will accelerate from here on and w

could continue to haunt investor sentiments. However higher dividend pa

remains the silver lining for returns. At the same time we would still like to pla

the uncertainty ride prevailing in Odisha. We tweak our multiples higher ( to 6x

5x earlier) to incorporate higher than expected annual volume guidance of 35mn

maintain Neutral recommendation with price objective of `190 (earlier 167).

Metals & Mining

Sector Outlook - Positive

June 03,

Financials Revenues EBIDTA Adj NP Adj. EPS P.E EV/EBIDTA

mn x x

FY12 113689 86462 64992 16.4 8.8 4.7

FY13 112619 89259 72654 18.5 7.9 4.2

FY14 107043 73752 63405 16.0 9.1 4.9

FY15E 119130 77026 64834 16.4 8.9 4.6

FY16E 124897 80424 67774 17.1 8.5 4.7

Source: Company, Sunidhi Research

8.2%

5.4%

3.6% 3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Revenue EBIDTA PBT APAT

FY13-FY16E CAGR

Recommendation Neutral

CMP (`) 175

Price Target (`) 190

Upside (%) 9%

52 Week H / L ` 189/93

BSE 30 24685

Key Data

No.of Shares, Mn. 3964.7

Mcap, `Mn 693824.3

Mcap,USD Mn @ `60 11563.7

2 W Avg Qty (BSE+NSE) Mn 6.0

Share holding, Mar'14

Promoters 80.0

FII 6.2

DII 10.6

Public & Others 3.2

Performance 1 M 3 M 6 M 12 M

Stock Return % 17.5 32.4 31.3 47.7

Relative Return % 7.9 15.5 -8.0 19.9

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

May-1

3

Jul-13

Aug-1

3

Sep-1

3

Oct-13

Nov-1

3

Dec-1

3

Jan-14

Feb-14

Mar-14

Apr-14

May-14

Jun-14

NMDC NIFTY

Chintan J.Mehta

[email protected]

Phone: +91-022-66106838


2/5

NMD

Sunidhi Research|

Karnataka e-auction volumes were good in Q4FY14, Realizations could be firmer

Q3FY14 results main highlights were higher e-auction realizations from Karnataka. In Q4FY

fines realization saw sharp fall, lumps prices were firmer. Moreover than that Lumps volume w

17% higher QoQ against 10% volume growth in fines during Q4FY14. Such higher lump volum

with firm prices could see better realization from Karnataka as well.

Realization Break up

NMDC sold 10.1 MnT Iron Ore (6 MnT Fines & 4.1 MnT Lumps) in Karnataka E-auction in FY14

Lumps Fines

Month W.A. Grade W.A. Bid Price Allotted Qty W.A. Grade W.A. Bid Price Allotted Q

Apr-13 63 4,053 232,000 61.2 2,600 4200

May-13 62.5 3,950 332,000 60.8 2,255 5240

Jun-13 63 3,990 308,000 60.5 2,525 4960

Jul-13 62.3 3,826 136,000 60.5 2,037 5560

Aug-13 62.6 3,655 324,000 60.7 2,170 5240

Sep-13 63 3,627 476,000 60.5 2,450 4760

Oct-13 63 3,795 376,000 60.5 2,287 4680

Nov-13 63 3,756 312,000 60.5 2,901 4760

Dec-13 62.2 3,810 364,000 60 3,448 4600

Jan-14 62.4 3,800 524,000 60 2,610 4600

Feb-14 62.8 3,926 400,000 60 2390 6720Mar-14 62.2 3,888 304,000 60 2370 4120

Total 62.67 3907 4088000 60.43 2380 59440

Source: Sunidhi Research

Quarterly Performance

Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY Q

Net revenues 25,937 28,379 26,118 20,477 30,767 28706 24799 28232 38845 26% 3

Stock adj -396 -131 -487 -495 -500 243 488 -58 -803 61% 128

Raw material charges 61 86 62 85 85 39 80 88 59 -31% -3

Stores and spares 808 537 398 640 738 618 615 833 1389 88% 6

Employee costs 1,265 1,353 1,440 1,392 1,420 1483 1447 1574 2559 80% 6

Royalty and cess 2,928 2,231 2,211 2,047 2,870 2236 1824 2256 3289 15% 4

SGA -23 361 2,127 1,764 2,460 2911 3664 2432 4467 82% 8

Other expenses 1,529 946 1,020 1,131 1,476 2125 1745 2081 3189 116% 5

otal expenditure 6,172 5,383 6,771 6,564 8,549 9654 9863 9204 14148 65% 5

EBITDA 19,765 22,996 19,347 13,913 22,218 19052 14936 19028 24697 11% 3

Depreciation 321 328 332 339 359 364 348 362 431 20% 1

EBIT 19,443 22,668 19,016 13,574 21,859 18688 14588 18666 24266 11% 3

Other income 5,477 5,546 5,832 5,563 5,507 5209 5384 5077 5275 -4%

Interest 15 18.5

PBT 24,905 28,214 24,848 19,137 27,365 23,897 19,972 23,743 29,523 8% 2

Extra-ordinary items 513 -454.8

Reported PBT 24,392 28,214 24,848 19,137 27,365 23,897 19,972 23,743 29,978 10% 2

Current taxes 7,970 9,154 8,062 6,209 8,878 8175.5 6788.3 8070.4 10356 17% 2

PAT 16,423 19,060 16,786 12,928 18,487 15,722 13,184 15,673 19,621 6% 2dj PAT 15,910 19,060 16,786 12,928 18,487 15,722 13,184 15,673 19,621 6% 2

E.P.S 4.1 4.8 4.2 3.3 4.7 4 3.3 4.0 4.9 5% 2

Operating Matrix

Production (mn

onnes) 7 6.87 5.37 5.32 8.2 6.94 5.95 7.28 10.01 22% 3

Dispatches (mn

onnes) 6.5 6.85 5.87 5.32 8.2 7.24 6.51 7.5 9.62 17% 2

Blended realization

(`/tonne) 4,005 4,143 4,449 3,849 3,752 3,954 3,779 3,764 3,991 6%

EBIDTA/tonne 3041 3357 3296 2615 2710 2631 2294 2537 2567 -5%



3/5

NMD

Sunidhi Research|

Assumptions and recommendation

We maintain our positive stance on the company and continue to believe its dominant positio

iron supply especially in restricted iron ore supply market domestically. However recent run u

stock price seems to discount much of the positives. Aggressive returns from here on lo

difficult considering 9-10% volume growth for FY15E. Additionally capital allocation to steel p

will accelerate from here on and which could continue to haunt investor sentiments. Howe

higher dividend payout remains the silver lining for returns. We tweak our estimates for FY15

incorporate higher volumes and higher other expenses as well. We maintain Neu

recommendation with price target of `190. However any meaningful correction in stock pr

could be used as an entry point for the stock.

2015E 201

Iron-ore realization (

/ton)

Domestic lumps (including royalty) 4,758 4,4

Domestic fines (Including royalty) 3,042 2,8

Blended (Including royalty) 3,796 3,6

Export 6,600 6,2

Iron-ore volumes (mn tons)

Chhattisgarh 23.0 23

Karnataka 11.0 13

Total 34.0 37

Lumps 11

Fines 22

Lumps (%) 33

Domestic (%) 92

EBITDA/ton () 2,389 2,3


Valuation Methodology

EBITDA(FY16E) EV/EBITDA EVValue per

share

(`mn) (X) (`mn) (`)

EBITDA 86,420 6.0 518,518 131

Net debt (208,291) (53)

CWIP (steel plant) 23,493 6

Target price () 750,302 189



4/5

NMD

Sunidhi Research|

Valuations Summary Balance Sheet (

mn)

Year End-March FY12 FY13 FY14P FY15E FY16E Year End-March FY12 FY13 FY14P FY15E

Per share (

) Sources of Funds

EPS 18.5 16.0 17.0 17.4 17.8 Equity Share Capital 3965 3965 3965 3965

CEPS Reserves & Surplus 240099 271145 280872 308153 33

BVPS 61.5 69.4 71.8 78.7 84.9 Net Worth 244064 275110 284837 312118 33

DPS 4.5 7.0 12.5 9 10 Loan Funds 0 0 0 0

Payout (%) 24% 44% 73% 52% 56% Deferred Tax Liability 1001 1045 1045 1045 Valuation (x) Capital Employed 245065 276155 285882 313163 33

P/E 9.5 10.9 10.3 10.1 9.8 Application of Funds

P/BV 2.8 2.5 2.4 2.2 2.1 Gross Block 23882 25820 40530 46480 5

EV/EBITDA 5.5 6.6 5.7 5.9 5.6 Less: Depreciation 11994 13173 14997 17390 2

Dividend Yield (%) 3% 4% 7% 5% 6% Net Block 11888 12647 25532 29089 3

Return ratio (%) WIP 14942 32361 44851 72551 9

EBIDTA Margin 79% 69% 65% 63% 64% Net Fixed Assets 26830 45008 70383 101640 13

PAT Margin 65% 59% 54% 53% 52% Investments 2478 2496 2496 2496

ROAE 33% 24% 24% 23% 22% Current Assets 237111 261385 285141 265088 26

ROACE 33% 24% 24% 23% 22% Debtors 7370 10822 11383 12510 1

Leverage Ratios (x) Inventory 4589 6375 7385 7736

Total D/E 0.0 0.0 0.0 0.0 0.0 Cash 202646 210258 232441 210911 20

Net Debt/Equity -0.8 -0.8 -0.8 -0.7 -0.6 Others 22506 33931 33931 33931 3

Interest Coverage - - - - - Current Liabilities 21420 32788 72192 56116 6

Current ratio 11.1 8.0 3.9 4.7 4.3 Creditors 1658 1608 1826 1913

Growth Ratios (%) Provisions 19762 31181 70366 54204 5

Income growth -1% -5% 16% 5% 4% Net Current Asset 215691 228597 212949 208972 20

EBITDA growth 3% -17% 10% 1% 5% Misc Expenses 66 54 54 54

PAT growth 12% -13% 6% 2% 2% Total 245065 276155 285882 313163 33

Turnover Ratios Cash flow Statement

F.A Turnover x 9.5 8.5 4.9 4.5 4.1 Year End-March FY12 FY13 FY14P FY15E

Inventory Days 12.6 17.5 20.2 21.2 22.1 PBT 107595 94624 102217 101251 10

Debtors Days 20.2 29.6 31.2 34.3 35.8 Depreciation 1878 1446 1825 2393 Income Statement (

mn) Interest Exp -11075 -19643 -22029 -20731 -

Year End-March FY12 FY13 FY14P FY15E FY16E Others 45 -36 39185 -16163

Revenues 112619 107043 124012 129907 135566 CF before W.cap 89875 74023 120575 66312 9

Op. Expenses 23360 33291 43001 47820 49147 Inc/dec in W.cap -8908 -2312 -1353 -1391

EBITDA 89259 73752 81011 82087 86420 Op CF after W.cap 80967 71711 119222 64921 9

Other Income 20165 22389 23031 21556 21586 Less Taxes -35021 -41000 -34754 -32400 -3

Depreciation 1302 1385 1825 2393 2735Net CF From

Operations 45946 30711 84468 32521 5

EBIT 87958 72367 79186 79695 83684Inc/(dec) in F.A +

CWIP -15088 -19774 -27200 -33650 -3

Interest 15 132 0 0 0(Pur)/sale of

Investments -1042 -19 0 0

PBT 107595 94624 102217 101251 105270 others 19658 22010 22652 21169 2

Tax 34941 31219 34754 32400 34739CF from Invst

Activities 3528 2216 -4548 -12481 -1

PAT 72654 63405 67463 68850 70531 Loan Raised/(repaid) 0 0 0 0

Source: Company, Sunidhi Research Dividend -9942 -19109 -23094 -23094 -

CF from Fin Activities -19109 -25343 -57736 -41570 -4

Net inc /(dec) in cash 30365 7612 22184 -21530

Op. bal of cash 172281 202646 210258 232441 21

Cl. balance of cash 202646 210258 232441 210911 20


5/5

NMD

Sunidhi Research|

Sunidhis Rating RationaleThe price target for a large capstockrepresents the value the analyst expects the stock to reach over next 12 months. For a stock to be

classified as Outperform,the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock

to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months.

Stocks between these bands are classified as Neutral.

(For Mid & Small cap stocks from 12 months perspective)

BUY Absolute Return >20%

ACCUMULATE Absolute Return Between 10-20%

HOLD Absolute Return Between 0-10%

REDUCE Absolute Return 0 To Negative 10%

SELL Absolute Return > Negative 10%

Apart from Absolute returns our rating for a stock would also include subjective factors like macro environment, outlook of the industry

in which the company is operating, growth expectations from the company vis a vis its peers, scope for P/E re-rating/de-rating for thebroader market and the company in specific.

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