6 February 2015
3QFY15 Results Update | Sector:
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Free float (%)
TP: INR166 (+18%)
EBITDA beat; valuations attractive despite sharp price cut
NMDC’s 3QFY15 EBITDA though declined 3% QoQ (+2% YoY) to
INR19.5b, was 17% ahead of estimates due to (1) 22% higher-than-expected
production and (2) higher absorption of costs in increased inventories.
Depreciation was up 30% QoQ due to a change in accounting policy pursuant to
Companies Act 2013 becoming effective. Adjusted PAT declined 3% QoQ (+2%
YoY) to INR15.9b (v/s est. of INR14.7b).
Cyclone impacted volumes but inventories rise:
Sales declined 4% QoQ to 7mt
due to the disruption caused to railways and Vizag ports by Hudhud cyclone
during October. Production though was unaffected and grew 10% YoY to 8.1mt,
leading to an increase in inventories.
Margins up despite lower prices:
EBITDA per ton increased 1% QoQ despite 3%
fall in realization (ex-royalty) as discussed above. Royalties increased 5pp QoQ to
15%. Lower share of loss-making exports too aided to boost margins.
Indian iron ore supply has eased significantly in Barbil area on
restart of mines. Thus, iron ore prices have started to correct. Falling steel and
scrap prices are exerting additional pressure on iron ore prices. Although NMDC
has cut prices, we expect a further cut of ~INR400/t by Apr 1, 2015.
Potential of strong volume growth:
We expect NMDC’s iron ore volumes to
increase to 37-38mt by FY17E, from the current 31mt.
Valuation still attractive on conservative estimates:
Though we have factored
FY16E iron ore realization to be lower by INR400/t compared to current prices,
the valuations are still attractive. The stock trades at one-year/forward
EV/EBITDA of 5.3x, against the historical average of 6.7x and dividend yield of
5.3%. Our 12-month EV/EBITDA (6x FY16E) based target price is INR166, implying
a potential upside of 18%. Maintain
M.Cap. (INR b) / (USD b) 558.0/9.0
Avg Val (INRm)/Vol ‘000 485/3,063
Financials & Valuation (INR Billion)
Adj. EPS (INR)
2015E 2016E 2017E
128.0 105.4 117.8
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
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