nmdc result updated

8/3/2019 NMDC Result Updated

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Please refer to important disclosures at the end of this report 1

Particulars (` cr) 3QFY12 2QFY11 % chg (yoy) 2QFY12 % chg (qoq)

Net sales 2,822 2,622 7.6 3,062 (7.8)

EBITDA 2,261 2,017 12.1 2,435 (7.2)

% margin 80.1 76.9 320bp 79.5 59bp

PAT 1,859 1,519 22.4 1,963 (5.3)

Source: Company, Angel Research

For 3QFY2012, NMDC’s profitability came in ahead of our estimates on account

of higher than expected realizations. We maintain Buy rating on the stock.

Realization up 7.6% yoy and 9.0% qoq: NMDC’s net sales increased by 7.6% yoy

to ` 2,822cr (slightly above our estimate of ` 2,745). Blended realization surprised

us positively (+6.1% yoy and +9.0% qoq to 4,394/tonne). However, iron ore

sales volumes were below our estimate (grew by only 1.4% yoy to 6.4mn tonnes).

Iron ore sales volumes were affected due to breakdown of slurry pipeline in

Bailadila mines and lower availability of railway rakes.

EBITDA/tonne increased by 10.5% yoy: During the quarter, EBITDA increased by

12.1% yoy to ` 2,261cr, in-line with the increase in sales. EBITDA/tonne increased

by 10.5% yoy and 9.9% qoq to ` 3,532 due to higher average realization. Other

income rose by 78.3% yoy to ` 525cr. Hence, PAT grew by 22.4% yoy to ` 1,859cr

(above our estimate of ` 1,757).

Outlook and valuation: Over the past five years, NMDC has traded at an average

EV/EBITDA of 13.7x, compared to its current valuation of 4.4x FY2013E

EV/EBITDA. Strong balance sheet, presence in sellers market (iron ore), relative

immunity to iron ore price declines, low cost of production, high-grade mines,

long mine life and compelling valuations make NMDC an attractive bet at these

levels. Valuing the stock at 6.0x FY2013E EV/EBITDA, we derive a fair price of

`227 and maintain our Buy rating on the stock.

Key financials

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E

Net sales 6,239 11,369 11,732 13,163

% chg (17.5) 82.2 3.2 12.2

Net profit 3,451 6,499 7,497 8,380

% chg (21.1) 88.3 15.3 11.8

FDEPS (`) 8.7 16.4 18.9 21.1

OPM (%) 70.9 76.1 79.4 78.9

P/E (x) 21.2 11.3 9.8 8.7

P/BV (x) 5.1 3.8 2.9 2.3

RoE (%) 26.6 38.8 33.9 29.8

RoCE (%) 33.4 50.6 41.4 36.2

EV/Sales (x) 9.7 4.9 4.3 3.5

EV/EBITDA (x) 13.6 6.5 5.5 4.4


BUYCMP ` 185

Target Price ` 227

Investment Period 12 months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 90.0

MF / Banks / Indian Fls 8.4

FII / NRIs / OCBs 0.8

Indian Public / Others 0.9

Abs. (%) 3m 1yr 3yr

Sensex (2.7) (11.6) 92.3

NMDC (20.5) (30.5) 11.6

Face Value ( ` )

BSE Sensex

Nifty

Reuters Code

73,169

0.8

305/136

60921

Mining

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

1

17,432

5,270

NMDC.BO

NMDC@IN

Bhavesh Chauhan

Tel: 022- 39357600 Ext: 6821

[email protected]

NMDC

Performance Highlights

3QFY2012 Result Update | Mining

February 2, 2011



NMDC | 3QFY2012 Result Update

February 2, 2011 2

Exhibit 1: 3QFY2012 performance

Y/E March (` cr) 3QFY12 3QFY11 yoy % 2QFY12 qoq %

Net Sales 2,822 2,622 7.6 3,062 (7.8)

Raw Material (33) (28) 18.4 63 (152.9)% of net sales (1.2) (1.1) 2.1

Consumption of stores & spares 60 51 16.8 52 14.3

% of net sales 2.1 1.9 1.7

Staff Cost 139 109 27.3 134 3.3

% of net sales 4.9 4.2 4.4

Other Expenditure 396 473 (16.3) 377 5.0

% of net sales 14.0 18.1 12.3

Total Expenditure 561 605 (7.3) 627 (10.5)

% of net sales 19.9 23.1 20.5

Operating Profit 2,261 2,017 12.1 2,435 (7.2)

OPM% 80.1 76.9 79.5

Other Operating Income - - -

EBITDA 2,261 2,017 12.1 2,435 (7.2)

EBITDA margin (%) 80.1 76.9 79.5

Interest - - -

Depreciation 34 29 17.3 32 6.4

Other Income 525 295 78.3 503 4.5

Exceptional Items - - -

Profit before Tax 2,752 2,282 20.6 2,906 (5.3)

% of net sales 97.5 87.0 94.9

Tax 893 763 17.0 943 (5.3)

% of PBT 32.4 33.4 32.4

PAT 1,859 1,519 22.4 1,963 (5.3)


Exhibit 2: 3QFY2012 – Actual vs. Angel estimates

(` cr) Actual Estimates Variation (%)

Net sales 2,822 2,745 2.8

EBITDA 2,261 2,127 6.3

EBITDA margin (%) 80.1 77.5 261bp

PAT 1,859 1,757 5.8





February 2, 2011 3

Result highlights

Realization rises 6.1% yoy and 9.0% qoq

NMDC’s net sales increased by 7.6% yoy to ` 2,822cr (slightly above our estimate

of ` 2,745). Blended realization surprised us positively (+6.1% yoy and +9.0% qoq

to 4,394/tonne). However, iron ore sales volumes were below our estimate (grew

by only 1.4% yoy to 6.4mn tonnes). Iron ore sales volumes were affected due to

breakdown of slurry pipeline in Bailadila mines and lower availability of railway

rakes.

Exhibit 3: Sales volumes up 1.4% yoy


Exhibit 4: Realization increased by 6.1% yoy


Exhibit 5: Net sales grew by 7.6% yoy


EBITDA/tonne increased by 10.5% yoy

During the quarter, EBITDA increased by 12.1% yoy to ` 2,261cr, in-line with the

increase in sales. EBITDA margin expanded by 320bp yoy to 80.1%. EBITDA/tonne

increased by 10.5% yoy and 9.9% qoq to ` 3,532 due to higher average

realization. Royalty and cess expenses/tonne stood flat yoy but increased 35.1%

qoq to ` 410.

-20

-10

0

10

20

30

40

50

60

0

1

2

3

4

5

6

7

8

9

3QFY10 1QFY11 3QFY11 1QFY12 3QFY12

( % )

( m n t o n n e s )

Sales volume % yoy (RHS)

-60

-40

-20

0

20

40

60

80

100

120

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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5,000


( % )

( ` / t o n n e )

Average revenue % yoy (RHS)

0

20

40

60

80

100

120

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

(

% ) ( `

c r )

Net sales (LHS) yoy change (RHS)




February 2, 2011 4

Exhibit 6: EBITDA/tonne grew by 10.2% yoy


Exhibit 7: EBITDA margin stood at 80.1%


Other income boosts PAT growth

Other income increased by 78.3% yoy to ` 525cr on account of higher yields as

well as higher cash balances on a yoy basis. Hence, PAT grew by 22.4% yoy to

` 1,859cr (above our estimate of ` 1,757).

Exhibit 8: Net margin stood at 65.9%


(80.0)

(60.0)

(40.0)

(20.0)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


( % )

( ` / t o n n e )

EBITDA/tonne % yoy (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

0

500

1,000

1,500

2,000

2,500

3,000


( % )

( `

c r )

EBITDA (LHS) EBITDA margin (RHS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

500

1,000

1,500

2,000

2,500

3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

( % ) ( `

c r )

Net profit (LHS) Net profit margin (RHS)




February 2, 2011 5

Investment rationale

Targets production to 40mn tonnes by FY2014–15E

NMDC aims to ramp up the company’s production capacity to 40mn tonnes by

FY2014–15E through increased exploration of its existing mines and development

of new mines, i.e., Deposit 11B and Deposit 13 in Bailadila and Kumaraswany,

respectively, in Karnataka. We expect NMDC’s sales volumes to grow at a CAGR

of 10.2% during FY2011-13.

Strong balance sheet could pave way for overseas acquisitions

During September 2011, NMDC purchased a 50% stake in Australia-based

Legacy Iron Ore (Legacy) as a cornerstone investor for ` 92cr. Also, the company is

currently prospecting various mining assets, including an iron ore mine and a

phosphate mine in Australia, an iron ore mine in Brazil and a coking coal asset inRussia. With a strong balance sheet having net cash of ` 20,725cr (September 30,

2011), we do not rule out the company acquiring more mining assets overseas.

However, given that NMDC is a government-owned company, we do not foresee a

big-ticket acquisition.

Seeking to diversify into steel making

Management intends to diversify its operations by moving downstream through

establishing steel plants and pellet plants. Accordingly, on December 10, 2010,

the company had signed a joint venture (JV) with OJSC Severstal (a vertically

integrated steel maker from Russia) to build an integrated 3mn tonne steel plant inKarnataka. This JV will have captive coking coal mine in Russia, while it will have

an iron ore mining subsidiary in India. Over 90% of the land acquisition is

complete, which gives comfort as land acquisition has been a major bottleneck to

greenfield projects in recent times.

Exhibit 9: Chhattisgarh steel project status

Capacity 3mn tonnes per year

Capex ` 15,525cr

Land Total land required: 1,934 acres. Total land acquired: 1,783 acres.

Balance land is under allotment process.Date ofcompletion

42 months from “Zero date” i.e., receipt of all statutory clearance/approvals and placement of orders.Targeted period – FY2015





February 2, 2011 6

Outlook and valuation

Over the past five years, NMDC has traded at an average EV/EBITDA of 13.7x,

compared to its current valuation of 4.4x FY2013 EV/EBITDA. Strong balance

sheet, presence in sellers market (iron ore), relative immunity to iron ore price

declines, low cost of production, high-grade mines, long mine life and compelling

valuations make NMDC an attractive bet at these levels. Valuing the stock at 6.0x

FY2013E EV/EBITDA, we derive a fair price of `227 and maintain our Buy rating

on the stock.

Exhibit 10: Key assumptions

FY2012E FY2013E

Sales volume (mn tonnes) 28 32

Average realization (US$/tonne) 85 83

Source: Angel Research

Exhibit 11: EPS – Angel forecast vs. consensus

Year (`) Angel forecast Bloomberg consensus Variation (%)

FY2012E 18.9 19.8 (4.5)

FY2013E 21.1 19.1 10.7

Source: Bloomberg, Angel Research

Exhibit 12: EV/EBITDA band


0

50,000

100,000

150,000

200,000

250,000

May-06 Apr-07 Mar-08 Feb-09 Jan-10 Dec-10 Nov-11

( ` c r )

5x 8x 11x 17x 14x




February 2, 2011 7

Exhibit 13: P/E band


Exhibit 14: P/BV band


Exhibit 15: Recommendation summary

Companies CMP Target Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) price (`) (` cr) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

Sesa Goa 232 - Neutral 20,185 - 6.5 5.2 1.3 1.1 2.7 2.4 22.3 22.5 21.2 13.3

NMDC 185 227 Buy 73,169 23 9.8 8.7 2.9 2.3 5.5 4.4 33.9 29.8 41.4 36.2

Coal India 322 - Neutral 203,261 - 13.7 13.1 4.5 3.6 8.8 8.0 37.8 30.5 35.2 28.0

MOIL 271 - Neutral 4,551 - 10.2 9.4 1.8 1.6 4.7 3.9 19.4 18.4 21.1 19.7


0

100

200

300

400

500

600

May-06 Apr-07 Mar-08 Feb-09 Jan-10 Dec-10 Nov-11

( ` )

9x 14x 19x 24x

0

100

200

300

400

500

600

700

Apr-06 Mar-07 Feb-08 Jan-09 Dec-09 Nov-10 Oct-11

( ` )

2.0x 4.0x 6.0x 8.0x




February 2, 2011 8

Profit & loss statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Net Sales 5,711 7,564 6,239 11,369 11,732 13,163

Other operating income - - - - - -Total operating income 5,711 7,564 6,239 11,369 11,732 13,163

% chg 36.4 32.4 (17.5) 82.2 3.2 12.2

Total Expenditure 1,374 1,726 1,817 2,722 2,413 2,775

Net Raw Materials 145 86 211 123 265 329

Personnel 356 421 420 492 493 553

Other 874 1,219 1,186 2,107 1,656 1,893

EBITDA 4,337 5,838 4,422 8,646 9,319 10,388

% chg 34.5 34.6 (24.2) 95.5 7.8 11.5

(% of Net Sales) 75.9 77.2 70.9 76.1 79.4 78.9

Depreciation& Amortisation 60 74 73 125 136 145

EBIT 4,277 5,764 4,349 8,521 9,183 10,243

% chg 36.1 34.8 (24.6) 95.9 7.8 11.5

(% of Net Sales) 74.9 76.2 69.7 75.0 78.3 77.8

Interest & other Charges - - - - - -

Other Income 671 884 862 1,206 2,006 2,264

Recurring PBT 4,947 6,648 5,211 9,727 11,189 12,507

% chg 41.4 34.4 (21.6) 86.7 15.0 11.8

Extraordinary Inc/(Expense) - - - - - -

PBT (reported) 4,947 6,648 5,211 9,727 11,189 12,507

Tax 1,696 2,276 1,760 3,228 3,692 4,127

(% of PBT) 34.3 34.2 33.8 33.2 33.0 33.0

PAT (reported) 3,251 4,372 3,451 6,499 7,497 8,380

ADJ. PAT 3,251 4,372 3,451 6,499 7,497 8,380

% chg 40.1 34.5 (21.1) 88.3 15.3 11.8

(% of Net Sales) 56.9 57.8 55.3 57.2 63.9 63.7

Basic EPS (`) 8.2 11.0 8.7 16.4 18.9 21.1

Fully Diluted EPS (̀ ) 8.2 11.0 8.7 16.4 18.9 21.1

% chg 40.1 34.5 (21.1) 88.3 15.3 11.8




February 2, 2011 9

Balance sheet


SOURCES OF FUNDS

Equity Share Capital 132 396 396 396 396 396Reserves& Surplus 8,157 11,240 13,876 18,818 24,561 30,979

Shareholders’ Funds 8,290 11,637 14,272 19,215 24,957 31,376

Total Loans - - - - - -

Deferred Tax Liability 6 58 85 103 103 103

Total Liabilities 8,296 11,695 14,357 19,317 25,060 31,479

APPLICATION OF FUNDS

Gross Block 1,421 1,669 1,771 2,273 3,273 4,273

Less: Acc. Depreciation 853 923 984 1,174 1,310 1,454

Net Block 568 747 787 1,099 1,963 2,818

Capital Work-in-Progress 112 248 556 677 745 819

Goodwill - - - - - -

Investments 83 72 76 136 136 136

Current Assets 8,283 11,771 14,264 19,172 23,937 29,480

Cash 7,199 9,740 12,855 17,228 22,025 27,451

Loans & Advances 244 403 519 1,043 1,043 1,043

Other 840 1,628 890 901 869 985

Current liabilities 775 1,165 1,348 1,781 1,735 1,789

Net Current Assets 7,508 10,606 12,916 17,391 22,202 27,691

Mis. Exp. not written off 25 22 22 14 14 14

Total Assets 8,296 11,695 14,357 19,317 25,060 31,479




February 2, 2011 10

Cash flow statement


Profit before tax 4,947 6,648 5,207 9,727 11,189 12,507

Depreciation 60 74 73 122 136 145Change in Working Capital (661) (785) 926 (525) (14) (63)

Others (105) (866) (832) (1,143) - -

Direct taxes paid (1,765) (2,292) (1,770) (3,319) (3,692) (4,127)

Cash Flow from Operations 2,476 2,778 3,604 4,861 7,619 8,462

Inc./ (Dec.) in Fixed Assets (123) (389) (422) (517) (1,068) (1,074)

Other income 640 880 828 1,022 - -

Cash Flow from Investing 517 491 407 506 (1,068) (1,074)

Issue of Equity - - - - - -

Inc./(Dec.) in loans - - - - - -

Dividend Paid (Incl. Tax) (643) (728) (895) (853) (1,754) (1,961)

Others - - - (142) - -

Cash Flow from Financing (643) (728) (895) (994) (1,754) (1,961)

Inc./(Dec.) in Cash 2,350 2,541 3,115 4,373 4,797 5,427

Opening Cash balances 4,849 7,199 9,740 12,855 17,228 22,025

Closing Cash balances 7,199 9,740 12,855 17,228 22,025 27,451




February 2, 2011 11

Key ratios

Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Valuation Ratio (x)

P/E (on FDEPS) 22.5 16.7 21.2 11.3 9.8 8.7P/CEPS 22.1 16.5 20.8 11.0 9.6 8.6

P/BV 8.8 6.3 5.1 3.8 2.9 2.3

Dividend yield (%) 2.7 1.2 1.1 1.7 2.0 2.3

EV/Sales 11.5 8.4 9.7 4.9 4.3 3.5

EV/EBITDA 15.2 10.9 13.6 6.5 5.5 4.4

EV / Total Assets 7.9 5.4 4.2 2.9 2.0 1.4

Per Share Data (`)EPS (Basic) 8.2 11.0 8.7 16.4 18.9 21.1

EPS (fully diluted) 8.2 11.0 8.7 16.4 18.9 21.1

Cash EPS 8.4 11.2 8.9 16.7 19.3 21.5

DPS 4.9 2.2 2.0 3.2 3.8 4.2

Book Value 20.9 29.4 36.0 48.5 62.9 79.1

Dupont Analysis

EBIT margin 74.9 76.2 69.7 75.0 78.3 77.8

Tax retention ratio (%) 65.7 65.8 66.2 66.8 67.0 67.0

Asset turnover (x) 6.0 5.2 3.8 6.7 4.8 3.9

ROIC (Post-tax) 293.1 261.7 174.0 336.9 253.6 202.1

Cost of Debt (Post Tax) - - - - - -

Returns (%)

ROCE (Pre-tax) 60.6 57.7 33.4 50.6 41.4 36.2

Angel ROIC (Pre-tax) 505.3 454.4 347.9 795.9 535.3 391.9

ROE 46.1 43.9 26.6 38.8 33.9 29.8

Turnover ratios (x)

Asset Turnover (Gross Block) 4.2 4.9 3.6 5.6 4.2 3.5

Inventory / Sales (days) 44 64 60 56 56 56

Receivables (days) 31 50 25 16 16 16

Payables (days) 61 81 105 54 54 54

WC cycle (ex-cash) (days) 23 33 34 11 16 15

Solvency ratios (x)

Net debt to equity (0.9) (0.8) (0.9) (0.9) (0.9) (0.9)

Net debt to EBITDA (1.7) (1.7) (2.9) (2.0) (2.4) (2.7)Interest Coverage (EBIT / Interest) - - - - - -




February 2 2011 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement NMDC

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

nmdc result updated

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