4 Dec 2013
Update |Sector: Utilities
NMDC
CMP: INR140
TP: INR 160
Buy
Second price hike in 3QFY14; Iron ore fundamentals are gaining
strength; valuations attractive; re‐iterate BUY
NMDC has announced price hike of INR200/ton across all products for the
month of December 2013. On Dec 2, private iron ore mines in Odisha had
announced a similar price hike on improvement in demand and reduction in
regional production as some of the mines have exhausted the annual permit
for the year FY14.
NMDC has already dispatched 4.8mt iron ore in the month of October and
November against our estimate of 7.6mt for 3QFY14.
Iron ore fundamentals remain strong; valuations attractive; best value in
Indian steel space; re‐iterate BUY
Iron ore market continues to show strength in both international and
domestic market. Stronger than expected Chinese steel production keeps
absorbing the additional tonnage released by iron ore expansions in
Australia.
India continues to remain absent from seaborne market, while African and
Brazilian supplies are not growing as expected. Seaborne iron ore supply is
expected to increase further as FMG, Citic, Rio and BHP have recently
commissioned new capacities. It remains to be seen how the oligopoly of 4
dominant suppliers keeps the market in balance. Looking at the forward
OTC swaps, the outlook for forward iron ore prices has been continuously
improving since the beginning of Oct 2013.
Indian iron ore market has stronger demand supply dynamics. New stricter
regulations, production limits and logistic bottlenecks are affecting iron ore
availability to Indian steel producers. Many new investments in pelletization
capacities are further driving the demand for iron ore fines. We believe that
the balance of negotiating power will keep tilting in favor of iron ore mines
in Indian market, which will narrow the gap of Indian iron ore prices with
international iron ore prices.
NMDC offer best value in Indian steel space. NMDC trades at FY15
EV/EBITDA of 4.5x, P/BV of 1.6x (RoE of 19.8%) and dividend yield of 5%.
1
 Motilal Oswal Financial Services
NMDC
INDIAN 63.5% GRADE IRON ORE FINES IN CHINA (US$/T)
OTC IRON ORE SWAPS (USD/t)
COMPARATIVE VALUATIONS
CMP: as on 2
Dec
nd
2
04 Dec 2013
 Motilal Oswal Financial Services
NMDC
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