10 February 2014
3QFY14 Results Update | Sector:
Metals
NMDC
BSE SENSEX
20,334
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,053
NMDC IN
3,964.7
154/93
6/27/-6
CMP: INR144
TP: INR177
Buy
Strong results; dividend payout ~90% YTD
NMDC reported strong results. Adjusted PAT for 3QFY14 increased 21% QoQ to
INR15.7b driven by 15% growth in volumes and 5% higher realization. EBITDA
increased 27% QoQ (+37% YoY) to INR19b, 3% ahead of estimate. EBITDA per ton
increased 11% QoQ to INR2,539. Capital allocation is improving with quantum jump
in dividend payout.
Price hikes and e-auction premiums benefited realization:
Average iron ore
realization in the domestic market increased 5% QoQ to INR3,468/t, reaping the
benefits of price hikes and superior e-auction premiums. Exports declined 39%
QoQ to 0.43mt, which fetch lower margins, too helped overall EBITDA per ton.
Quantum jump in interim dividend:
The two interim dividends together are
significantly higher at INR8.5 v/s INR3/share last year, which implies payout ratio
of ~90% for 9MFY14. We are expecting INR9/share (payout of 64.8%, yield of
6.2%) for FY14E. Capex remains low as implied by segmental capital employed.
Raise estimates:
We continue to believe that iron ore supply is getting tighter in
India, which will help domestic iron ore prices despite headwinds in international
market. NMDC has taken a price hike of ~INR100/t for iron ore fines from Feb 1,
2014. Volumes have picked up further in January 2014 with re-start of Essar slurry
pipeline. We raise the volume expectation from 8.5/29.6mt to 9.3/30.5mt for
4Q/FY14. Hence, EPS is raised 1.5/2.3% for FY14E/FY15E.
Valuations attractive; maintain Buy:
We expect NMDC to deliver ~11% volume
CAGR to 35.5mt over FY13-16E. Stock is trading at attractive 1.8x FY15E BV (RoE
of 21.7%), EV of 4.4x FY15E EBITDA and dividend yield of >6%. We value the stock
at INR177 (23% upside) based on 5.5x EV/EBITDA. Reiterate
Buy.
M.Cap. (INR b) / (USD b) 572.1/9.2
Financials & Valuation (INR Billion)
Y/E Mar
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA
( )
2014E 2015E 2016E
118.9
77.4
64.4
16.2
-2.8
22.5
33.7
8.9
1.9
4.7
130.6
83.7
69.8
17.6
8.3
22.6
33.1
8.2
1.8
4.4
136.3
87.3
71.5
18.0
2.5
21.6
31.6
8.0
1.7
4.4
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

NMDC
Volumes up 40% in 3QFY14
and 16% in FY14
Quarterly deliveries (m tons)
FY13
7.3
FY14
7.4
9.3
6.5
6.9
1Q
5.9
2Q
5.3
3Q
8.2
4Q
Source: Company, MOSL
We have increased
production expectation for
4QFY14 due to restart of
Essar slurry pipeline
Regional wise annualized deliveries
33.8
26.6
20.0
25.3
37.0
Karnataka
Chhattisgarh
33.0
30.4
30.0
29.0
27.6
26.0
25.7 25.9 27.4 23.4
21.3
Source: MOSL, Company
NMDC has increased prices
by INR300/ton in last 3
months and further by
INR100/ton on iron ore
fines for the month of
February
Realization
Domestic Realization INR/T
4,102
4,130
3,630
3,680
3,735
3,290
3,468
3,680
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14E
Source: MOSL, Company
10 February 2014
2

NMDC
NMDC increased prices of
iron ore fines in Feb taking
the total increase to
INR300/t since bottom in
September 2013
Monthly iron ore prices (INR/T)
4,600
4,600
4,600
4,400
Lumps
4,200
4,200
Fines
4,300
4,300
4,500
4,500
4,500
2,610
2,610
2,610
2,510
2,510
2,510
2,610
2,610
2,810
2,810
2,910
Apr-13 May-13 Jun-13
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14
Source: Company
Dividend payout and DPS is
ST
nd
expected to rise; 1 and 2
dividend together amounts
to INR8.5/share vs our
expectation of INR9/share
Dividend payout is being raised
DPS (RHS)
Payout %
51.1
64.5
66.4
23.4
1.6
FY08
23.4
2.2
FY09
23.6
1.7
FY10
2.2
15.3
26.3
4.5
FY12
7.0
FY13
9.0
10.0
FY11
FY14
FY15
Source: MOSL
Since Jun 2013, 12.2mtpa of
pellet capacity has already
been commissioned.
Another 11.4mtpa capacity
is expected to be on stream
by March 2014
Pellet capacity (m tons)
78.2
48.6
18.6
2009
25.2
2010
29.6
56.2
81.8
2011
2012
2013
2014
2015
Source: MOSL
10 February 2014
3

NMDC
NMDC: an investment profile
Company description
NMDC is India's largest iron ore producer, with a
capacity of 36mtpa. It produces ~30-32mtpa of iron ore
from four mining complexes in Chhattisgarh and
Karnataka. In addition to its iron ore operations, NMDC
has a diamond mine at Panna (Madhya Pradesh) and
owns a 10.5MW wind power plant in Karnataka. In July
2010, Sponge Iron India, which has a small sponge iron
capacity of 60ktpa, was merged with NMDC. It is
investing INR155b over the next five years to expand its
iron ore production to 50mtpa and forward integrate by
setting up a 3mpta steel plant in Chhattisgarh and
1.2mtpa pellet plant in Karnataka.
Key investment risks
NMDC's Chhattisgarh operations are prone to
disruption on account of Naxal activities in the
region.
NMDC increased iron ore fines prices by INR100/t
MoM in Feb. Prices of lumps are unchanged.
Essar steel’s slurry pipeline restarted w.e.f. 24th Jan.
Stock is trading at attractive 1.7x FY15 BV (RoE: 20%),
an EV of 4.6x FY15 EBITDA. Maintain Buy.
Recent developments
Valuation and view
Key investment arguments
Sector view
We expect international iron ore prices to correct due
to a slowdown in Chinese steel demand growth and
increased supply. However, Indian domestic iron ore
prices are expected to remain firm due to supply
constraints post increased regulatory vigil. We
believe that iron ore supply is getting tighter in India,
which will help domestic prices.
Iron ore realizations are expected to be resilient
because the landed cost of domestic iron ore to
Indian steel producers is at significant discount to
imports.
While globally, the iron ore business is facing a
slowdown, strong domestic demand coupled with
constrained supply has improved fundamentals of
Indian iron ore miners like NMDC.
Investments in pelletization capacities in India will
lead to acceleration in demand (and therefore,
higher prices) for iron ore fines, which constitute
~65% of NMDC's product mix.
Unlike its global peers, NMDC's average iron ore
realization much more resilient, helping to keep
margins stable.
Comparative valuations
NMDC
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
8.9
8.2
1.9
1.8
3.1
2.8
4.7
4.4
EPS: MOSL forecast v/s consensus (INR)
SAIL
9.5
9.4
0.6
0.6
1.0
1.1
9.0
7.9
TATA STEEL
9.4
8.1
1.6
1.4
0.8
0.7
6.6
6.0
FY14
FY15
MOSL
Forecast
16.2
17.6
Consensus
Forecast
15.6
16.3
Variation
(%)
3.7
7.8
Target price and recommendation
Current
Price (INR)
144
Target
Price (INR)
177
Upside
(%)
22.9
Reco
Buy
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
80.0
10.5
6.1
3.4
Stock performance (1-year)
Sep-13
80.0
10.7
5.3
4.0
Dec-12
80.0
11.9
4.4
3.7
10 February 2014
4

NMDC
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2013
107.0
-4.9
77.8
72.7
1.4
76.5
0.0
22.4
-4.1
94.8
31.2
32.9
63.6
66.3
-9.2
2014E
118.9
11.1
77.4
65.1
1.4
76.0
0.0
20.8
0.0
96.8
32.4
33.4
64.4
64.4
-2.8
(INR Billion)
2015E
130.6
9.9
83.7
64.1
1.6
82.1
0.0
20.5
0.0
102.6
32.8
32.0
69.8
69.8
8.3
2016E
136.3
4.3
87.3
64.0
1.7
85.5
0.0
19.6
0.0
105.2
33.7
32.0
71.5
71.5
2.5
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Debtors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
16.7
16.4
69.4
7.0
51.1
8.6
8.8
2.1
3.4
4.6
4.9
25.5
37.9
0.4
36.9
21.7
36.9
-0.8
2014E
16.2
16.6
75.1
9.0
64.8
8.9
8.7
1.9
3.1
4.7
6.2
22.5
33.7
0.4
35.0
12.0
35.0
-0.7
2015E
17.6
18.0
81.0
10.0
66.5
8.2
8.0
1.8
2.8
4.4
6.9
22.6
33.1
0.4
35.0
12.0
35.0
-0.6
2016E
18.0
18.5
86.2
11.0
71.4
8.0
7.8
1.7
2.8
4.4
7.6
21.6
31.6
0.4
35.0
12.0
35.0
-0.6
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
4.0
271.1
275.1
0.0
1.0
276.2
24.6
12.0
12.6
32.8
2.5
261.0
6.4
10.8
210.3
33.5
32.8
11.1
21.7
228.2
276.2
2014E
4.0
293.8
297.8
0.0
1.0
298.8
28.6
13.4
15.2
57.2
2.5
253.8
3.9
11.4
204.9
33.5
29.8
8.1
21.7
223.9
298.8
(INR Billion)
2015E
2016E
4.0
4.0
317.2
337.7
321.2
341.7
0.0
0.0
1.0
1.0
322.2
342.7
32.6
36.6
15.0
16.8
17.6
19.9
82.4
108.6
2.5
2.5
250.3
242.8
4.3
4.5
12.5
13.1
199.9
191.7
33.5
33.5
30.6
31.0
8.9
9.3
21.7
21.7
219.7
211.8
322.2
342.7
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
Other Income
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
94.8
0.0
-22.4
0.0
-31.2
-9.0
32.1
-14.4
0.0
0.0
-14.4
0.0
0.0
-32.5
22.4
-10.1
7.6
202.6
210.3
2014E
96.8
1.4
-20.8
0.0
-32.4
-1.1
44.0
-28.4
0.0
0.0
-28.4
0.0
0.0
-41.7
20.8
-21.0
-5.4
210.3
204.9
(INR Billion)
2015E
102.6
1.6
-20.5
0.0
-32.8
-0.7
50.2
-29.2
0.0
0.0
-29.2
0.0
0.0
-46.4
20.5
-25.9
-5.0
204.9
199.9
2016E
105.2
1.7
-19.6
0.0
-33.7
-0.3
53.3
-30.1
0.0
0.0
-30.1
0.0
0.0
-51.0
19.6
-31.4
-8.2
199.9
191.7
10 February 2014
5

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NMDC
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2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
NMDC LTD
No
No
No
No
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10 February 2014
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6