27 November 2014
Update | Sector: Metals
NMDC
BSE Sensex
28,439
S&P CNX
8,494
CMP: INR140
n
TP: INR161
Buy
Cutting volume, realization estimates and target price
Pricing power at peak:
As expected by us (refer the base report on NMDC
“Gaining pricing power”
dated July 3, 2012), Indian iron ore prices have
gained strength, notwithstanding cheaper imports, as domestic supply
became tight due to the crackdown of illegal mining activities. Closure of 26
mines in Odisha and subsequently in Jharkhand has turned the situation
from bad to worse, which has created a temporary shortage. Pricing of iron
ore has now switched to import parity in most cases. For Indian steel mills
located away from mines and closer to ports, it is now cheaper to import.
Indian iron ore pricing thus could not have been in a better situation, which
may last for some more time, though not sustainable.
We believe domestic iron ore availability will improve in FY16
on the start
of mining in Goa, Odisha, Jharkhand and production ramp-up in Karnataka.
Global iron ore prices have crashed 44% since Jan 1, 2014, surpassing our
expectation of USD75/dmt, on largest supply growth when demand
growth is lowest:
During this period, BIG4 miners delivered an
unprecedented 177mt of new supply, crowding out 46mt high cost supply,
as the market could absorb only 131mt. Contrary to common belief, no
material iron ore production cuts in China have been seen so far. Perhaps,
Chinese mines have managed their costs better. In contrast, the global pig
iron (hot metal) production increase of 17mt has been the lowest in last five
years.
Another year of big supply growth ahead:
We expect 2015 to be another
year of strong supply growth. The BIG4 are determined to push another
77mt supply in seaborne trade. We expect prices to fall to USD60/dmt.
NMDC has priced itself out of market, shipments hurt:
NMDC’s iron ore
pricing is not competitive any more. The shipments have started to suffer.
Imports are 23% cheaper for Indian steel mills on the coast. Tata Steel has
filled the void created by coastal steel mills. As iron ore import price heads
towards USD60/dmt (our view), we expect NMDC to cut prices of lumps by
INR1,100/t to INR3,300/t and fines by INR760/t to INR2,400/t.
Price cut ahead:
We have cut the average realization by ~INR900/t (based
on current prices) for FY16E and FY17E on an expected improvement in
domestic supply, as mines re-open and import prices correct to USD60/dmt.
Volumes cut by ~3mtpa:
NMDC has adopted a uniform ex-mine price for all
customers. This policy works as long as the landed cost to the farthest
customer is competitive. However, being unfeasible, it is driving out its
traditional customers. NMDC needs to adopt competitive pricing on
delivered basis. The Board is unlikely to agree to ex-mine differential
pricing. Thus, we believe that NMDC will lose ~3mtpa volumes.
Target price cut by 27%:
We lower FY16E EBITDA by 25% and the target
price by 27% to INR161 on volume and price cut. Valuations are not
demanding, and dividend yield remains attractive. Maintain
Buy.
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
NMDC IN
3,964.7
196/123
-20/-35/-74
555.3
9.0
n
Financial Snapshot (INR Billion)
Y/E Mar
2015E 2016E 2017E
Net Sales
129.0 104.2 116.6
EBITDA
Adj PAT
EPS (INR)
Growth (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
81.2
67.9
17.1
21.6
32.0
8.2
1.7
4.5
66.5
57.6
14.5
17.1
25.0
9.7
1.6
5.6
75.2
62.3
15.7
8.2
17.4
25.5
9.0
1.5
5.1
n
6.3 -15.2
n
Shareholding pattern (%)
As on
Sep-14 Jun-14 Sep-13
Promoter
DII
FII
Others
80.0
10.6
6.8
2.6
80.0
10.2
7.0
2.8
80.0
10.7
5.3
4.0
n
FII Includes depository receipts
n
Stock Performance (1-year)
250
205
160
115
70
NMDC
Sensex - Rebased
n
n
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
Investors are advised to refer through disclosures made at the end of the Research Report.

NMDC
Global iron ore prices slump is here to stay – USD60/t
n
Global iron ore prices are declining on oversupply -- rising supply and weakening
demand in China. Global iron ore prices have never been so relevant to Indian
iron ore market. India has now turned a net importer of iron ore and the pricing
has switched to import parity. Before we start analyzing the domestic market,
we need to have a good view on global supply and pricing outlook.
Iron ore prices have fallen
44% YTD and still counting
Exhibit 1: Iron ore prices (USD/t) cfr China
Source: Bloomberg
n
Global seaborne iron ore supply has expanded the most in 2014 by an
unprecedented 131mt to 1,356mt, surpassing the previous peak growth of
130mt seen in 2010. Barring these two years, global supply has grown by a
modest ~50mtpa on an average since 2005 and almost always disappointed
expectation as junior mines in Australia and Brazil struggled with funding (due to
volatility in iron ore prices) and lack of infrastructure, while the focus at BIG3
(Vale, BHP-Billiton and Rio Tinto) was rather towards diversification through
M&A.
Unprecedented growth in
iron ore supply is driven by
Big 4 players, who crowded
out high cost supply in 2014
Exhibit 2: Global seaborne iron ore supply increases (mt)
Source: BREE, MOSL
n
n
Unlike 2010, when the iron ore supply growth of 130mt was absorbed by strong
demand -- 101mt recovery in pig iron production (post a massive slump of 2009
in Rest of World), the massive supply increase in 2014 could not have been
timed worse when the pig iron production increase slumped to a five-year low.
Iron ore prices rallied in 2010 on strong demand, while they slumped in 2014 on
poor demand.
Iron ore prices have now fallen below USD75/t, in line with our expectation
highlighted on page 14 of our report
“Downhill Run”
dated August 2012.
2
27 November 2014

NMDC
Large iron ore supply
growth came when pig iron
production slumped
Exhibit 3: Pig iron production increase (mt) – key driver of iron ore demand
Source: WSA, MOSL
n
Massive supply growth of
177mt by BIG4 in 2014
n
n
We were expecting a total supply growth of 256mt during 2013 and 2014. The
actual supply increase has been 184mt, which is still below the estimate. But the
growth in low cost supply by BIG4 players (BIG3 and FMG) of 218mt (versus
estimate of 160mt) beat expectation by a large margin, leading to crowding out
of supplies from other sources. Hence, iron ore prices have seen a sharper drop.
The massive imbalance in supply is witnessed in 2014 as BIG4 delivered 177mt
to seaborne trade, while 46mt supply from other mines (high cost) were
crowded out in seaborne market, not to mention the high cost Chinese supply.
As demand slumps (as we had expected in our report “DownHill Run”) due to
slowdown in Chinese steel consumption and more particularly pig iron (hot
metal) production, the focus of BIG4 has now shifted to gain market share by
crowding out high cost supply.
Rising Chinese domestic
steel scrap supply too
does not augur well for
iron ore demand
Exhibit 4: Chinese implied domestic scrap supply (mt)
Source: WSA, MOSL
n
n
It was widely believed that high cost Chinese iron ore mines would close if iron
ore prices fall below USD120/dmt, which was later adjusted to USD100/dmt and
again to USD80/dmt. Contrary to common belief, we have not seen a cut in
China’s domestic iron ore production (exhibit 5), despite a breach in these.
According to Metal Bulletin, some of the high cost small mines have indeed shut
down but that is a very small proportion. Steel mills in hinterland still prefer to
source from local mines due to volatility in import price and cost of inland
transportation.
27 November 2014
3

NMDC
No cut in production
despite vertical fall in
iron ore prices
Exhibit 5: China's domestic monthly iron ore production (mtpm)
Source: Bloomberg
Expect 2015 to be another
year of large supply growth
n
Any iron ore price
recovery will signal
more supply growth
n
n
Post the unprecedented iron ore supply in 2014, the BIG4 will deliver another
strong supply growth in 2015 as they focus on reducing cost by sweating assets.
Australian BIG3 are guiding to 20-25% cut in C1 cost. Falling fuel prices and
depreciating local currency in Australia and Brazil (versus USD and RMB) will
push the cost curve further down.
BIG4 miners will add 74mt of new supply to seaborne trade notwithstanding low
iron ore prices. Rio Tinto is guiding that iron ore exports will increase by 30mt to
330mt in 2015. BHP will add 20mt of new supply from 30mtpa expansion to
275mtpa (plan to take it to 295mtpa) in Western Australia Iron Ore (WAIO)
mines, which requires no capex. FMG is already running at an annualized run-
rate of 175mtpa. The shipments will increase by 21mt to 175mt in 2015. Its
infrastructure will be augmented by the addition of 5
th
Berth at port in early
2015. Vale has been slow in adding capacity. Vale’s 90mtpa expansion (S11D) in
expected to deliver new volumes in 2HCY16. Of the massive USD20b capex on
mines and infrastructure, nearly half the money is already spent. Since this cost
of production at S11D will be lower than its existing mines, Vale is unlikely to
halt this project. Share of the BIG4 in global seaborne iron ore supply has
increased from 71% in 2013 to 77% in 2014, which will rise further to 79% in
2015 and 81% in 2016.
If iron ore prices recover, we will see supply growing from junior mines -- MMX,
CSN, Usiminas in Brazil and Atlas, Gindalbie, Citic etc in Australia. These junior
mines have already made large critical investments in infrastructure. Thus, they
will need to make lower specific capex to bring new supplies.
We lower the estimate for iron ore prices from USD83/t to USD60/t cfr China for
62% Fe to factor the larger-than-expected growth of low cost supply and
correction in cost curve on account of currency movement and operating cost.
27 November 2014
4

NMDC
India iron ore prices have peaked as well
As expected in our base report on NMDC (“Gaining
price power”
dated July 3,
2012), Indian iron ore prices have gained strength notwithstanding cheaper imports
as domestic supply became tight on the crackdown of illegal mining activities.
Closure of 26 mines in Odisha and subsequently in Jharkhand has turned the
situation from bad to worse. This has created a temporary shortage. Pricing of iron
ore has now switched to import parity in most cases. For Indian steel mills located
away from mines and closer to ports, it is now cheaper to import. Indian iron ore
pricing could not have been in a better situation, which may last for some more time
though not sustainable.
Exhibit 6: Indian iron ore supply for domestic steel mills and demand (mt)
Indian iron ore availability
at worst on closure of
mines in Odisha
and Jharkhand
Source: MOSL, IBM
n
Indian iron ore mines located in Odisha and Jharkhand have been raising prices
due to declining availability. SAIL and Tata Steel’s mines in Odisha were
operating under an Express order until Nov 15, 2014. SAIL’s mining leases have
been renewed but Tata Steel failed to get its lease renewed in time. Tata Steel’s
all mines are now closed forcing it to buy its entire 18mtpa requirement from
the market. Tata Steel filled the gap created by JSW Steel, which switched to
imports.
Exhibit 7: Iron ore lumps (INR/t) ex mine
Source: MOSL
n
n
On the other hand, steel and scrap prices have been declining in line with the
weakening trend in international market.
We believe Indian steel mills are getting squeezed between rising costs and
falling revenue. Indian steel pricing has come under attack from cheaper
imports. Although expectation is being built that imports will be curbed with
5
27 November 2014

NMDC
higher duties and non-tariff barriers, we believe it is impossible to insulate the
Indian steel market from volatility of global trade. If steel imports are curbed,
scrap and iron ore imports will ensure that Indian steel prices trend down,
unless steel demand recovers.
Exhibit 8: Iron ore fines (INR/t) ex mine
Source: MOSL
Exhibit 9: Indian long steel product prices (INR/t, exl. ED & VAT)
Source: MOSL
Exhibit 10: Scrap prices (INR/t, exl. ED & VAT)
Source: MOSL
27 November 2014
6

NMDC
Indian iron ore supply too is expected to ease
We believe iron ore availability will improve in FY16 on the start of mining in Goa,
Odisha and Jharkhand. Iron ore production will increase in Karnataka as well.
n
Some of the iron ore mines in Goa will return to operations. The High Court has
allowed resumption of mining in 28 leases that had paid stamp duty. We expect
~10mt of iron ore production from Goa in FY16. At iron ore prices of USD60/t cfr
China for 62% Fe, exports will be viable only for high grade ore, which is scarce
in Goa, and low grade ore exports will not be viable. Thus, this iron ore will be
available to mills in the western parts of India at a right price.
Exhibit 11: Economics of iron ore exports at USD60/t IODEX62
EBITDA
USD/wmt
-34
-25
-24
5
-3
-16
Ex-mine price (royalty, taxes extra)
USD/wmt
INR/wmt
-23
-1,423
-17
-1,027
-16
-960
13
798
5
290
-8
-513
Source: MOSL
Odisha 63%
NMDC 63%
Karnataka 63%
Goa 63%
Goa 58%
Goa 52%
n
Iron ore production in Karnataka will increase by 5-6mtpa to 23mtpa as Mysore
Mineral has been granted the approval for 3mtpa capacity (at the cost of
NMDC). Sesa-Sterlite’s mine, with 2.29mtpa capacity, too is expected to return
to operation.
Exhibit 12: Indian iron ore production (mt)
Goa
Karnataka
Orissa
Jharkhand
Chattisgarh
Others
Total
FY01 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
14.6
17.9 20.3 22.3 24.0 28.7 30.5 33.0 39.3 35.6 33.4 10.9
-
-
10.0 20.0
18.9
24.8 31.6 37.2 39.8 40.7 49.0 45.9 43.0 39.0 13.2 11.5 18.3 20.0 22.0 25.0
14.4
22.1 31.3 40.6 52.5 64.2 69.9 74.1 79.3 76.1 67.0 64.4 76.2 50.0 76.0 80.0
5.0
13.7 14.7 16.1 18.0 18.6 20.8 21.2 23.0 22.3 18.9 18.0 22.6 14.7 22.6 22.6
20.1
19.8 23.3 23.1 26.1 28.7 31.0 30.1 26.5 29.3 30.5 28.0 30.2 32.2 34.2 37.2
4.9
6.7
12.1 11.1
7.5
4.9
4.3
3.8
5.2
5.2
5.2
5.2
122.8 145.9 165.2 187.7 213.2 215.4 218.6 207.2 167.3 136.6 152.4 122.0 169.9 189.9
Source: MOSL; IBM
n
n
26 mines in Odisha (including Tata Steel and SAIL) are expected to return to
production. Even if some of these mines do not get leases, the Odisha
government has indicated that it may allow enhanced production from
underutilized operating mines.
Post election, the Jharkhand government too is expected to decide the fate of
closed mines. We expect iron ore production to normalize in FY16.
27 November 2014
7

NMDC
NMDC’s iron ore pricing is not sustainable
NMDC’s iron ore pricing is not competitive any more and the shipments have
started to suffer.
n
JSW Vijaynagar, JSW Dolvi, JSW Maxsteel, Essar Steel and RINL are its key
customers who took nearly 80% of the shipments. However, with the fall in iron
ore import prices, NMDC has already lost coastal steel mills -- Dolvi, Maxsteel --
fully and Essar Steel partially to imports. The gap though has been filled by Tata
Steel and other smaller mills who are suffering from iron ore shortage due to
closure of mines in Odisha and Jharkhand. This has allowed NMDC to keep its
prices unchanged.
NMDC’s iron ore lumps are
USD20/t more expensive
versus imports
for west
coast steel mills
Exhibit 13: Iron ore lumps: landed cost to Indian steel mills (NMDC v/s imports)
Unit
Dolvi
(a) Landed cost from NMDC
USD/wmt
111
(b) Landed cost of imports
USD/wmt
90
NMDC pricing at premium/(discount) to imports USD/wmt
20
(a) calculations for landed cost from NMDC
Ex-Mine Price
INR/wmt
4,400
add: royalty @15%
INR/wmt
660
add: transportation/port handling
INR/wmt
1,750
Landed cost at plant
INR/wmt
6,810
Landed cost at plant
USD/wmt
111
(b) calculations for landed cost of imports
Iron ore lumps cfr
USD/dmt
86
less: moisture (8%)
USD/wmt
3
add: import duty (2.5%)
USD/wmt
7
Landed cost on port
USD/wmt
90
add: Domestic transportation cost
USD/wmt
0
Landed cost at plant
USD/wmt
90
USD/INR exchange rate = 61.5 IODEX 70USD/T, CFR China basis;
Essar
111
90
20
4,400
660
1,750
6,810
111
86
3
7
90
0
90
Tata
112
110
2
4,400
660
1,800
6,860
112
RINL
99
90
9
4,400
660
1,050
6,110
99
86
86
3
3
7
7
90
90
20
0
110
90
Source: MOSL
NMDC’s iron ore fines are
USD17/t more expensive
versus
imports for west
coast steel mills
Exhibit 14: Iron ore fines: landed cost to Indian steel mills (NMDC v/s imports)
(a) Landed cost from NMDC
(b) Landed cost of imports
NMDC premium/(discount) to imported
(a) calculations for landed cost from NMDC
Ex-Mine Price
INR/wmt
3,160
add: royalty @15%
INR/wmt
474
add: transportation/port handling
INR/wmt
1,750
Landed cost at plant
INR/wmt
5,384
Landed cost at plant
USD/wmt
88
(b) calculations for landed cost of imports
Iron ore lumps cfr
USD/dmt
70
less: moisture (8%)
USD/wmt
6
add: import duty (2.5%)
USD/wmt
7
Landed cost on port
USD/wmt
71
add: Domestic transportation cost
USD/wmt
0
Landed cost at plant
USD/wmt
71
USD/INR exchange rate = 61.5 IODEX 70USD/T, CFR China basis;
n
Unit
USD/wmt
USD/wmt
USD/wmt
Dolvi
88
71
17
Essar
75
71
4
3,160
474
950
4,584
75
70
6
7
71
0
71
Tata
88
91
-2
3,160
474
1,800
5,434
88
RINL
76
71
5
3,160
474
1,050
4,684
76
70
70
6
6
7
7
71
71
20
0
91
71
Source: MOSL
According to our calculations, NMDC’s iron ore is expensive by USD20/t (lumps)
and USD17/t (fines) for the west coast mills -- JSW Dolvi, Maxsteel and Essar
Steel. The impact for Essar Steel on purchase of fines is little less at USD4/t as its
transportation costs are lower through the slurry pipeline. Even RINL will find it
8
27 November 2014

NMDC
cheaper to import at the current iron ore prices than buying from NMDC. JSW
Dolvi and Maxsteel have switched to imports completely, while Essar Steel has
already reduced offtake of fines through the slurry pipeline. We expect a
shortfall of 2mt (v/s estimate of 8.6mt) for 3QFY15 shipments. Hudhud cyclone
too played a role in lower shipments due to the damage to a rail bridge.
Exhibit 15: Landed cost of NMDC’s Chhattisgarh iron ore (USD/wmt) v/s imports for various Indian steel plants
Source: MOSL
27 November 2014
9

NMDC
NMDC needs to cut average iron ore prices by INR900/t
n
n
n
We expect iron ore prices to further trend down to USD60/dmt (for 62% Fe on
cfr China basis). Once the production at Tata Steel’s iron ore mines is restored,
NMDC will need to regain the coastal steel mills.
NMDC will need to cut prices of iron ore lumps by INR1,100/t to INR3,300/t for
it to be able to sell to customers in the eastern sector. Even at these lower
prices, JSW Dolvi, Maxsteel and Essar will find imports cheaper by USD10/wmt.
However, RINL will come back. Assuming that there will be enough demand in
the eastern region, NMDC perhaps may not need to focus on west coast steel
mills.
Regarding iron ore fines, NMDC cannot ignore the west coast steel mills like
Essar Steel once Tata Steel’s mines return to operations. According to our
calculations, NMDC will need to take a price cut of 760/t to align prices with
imports for Essar Steel and RINL. JSW Dolvi will still find it USD12/t cheaper to
import. Average realization is expected to be lower by ~INR900/t.
Essar
90
80
10
3,300
495
1,750
5,545
90
76
2
7
80
0
80
Tata
91
100
-9
3,300
495
1,800
5,595
91
RINL
79
80
-2
3,300
495
1,050
4,845
79
Exhibit 16: Iron ore lumps: landed cost to Indian steel mills (NMDC v/s imports)
Unit
Dolvi
(a) Landed cost from NMDC
USD/wmt
90
(b) Landed cost of imports
USD/wmt
80
NMDC pricing at premium/(discount) to imports USD/wmt
10
(a) calculations for landed cost from NMDC
Ex-Mine Price
INR/wmt
3,300
add: royalty @15%
INR/wmt
495
add: transportation/port handling
INR/wmt
1,750
Landed cost at plant
INR/wmt
5,545
Landed cost at plant
USD/wmt
90
(b) calculations for landed cost of imports
Iron ore lumps cfr
USD/dmt
76
less: moisture (8%)
USD/wmt
2
add: import duty (2.5%)
USD/wmt
7
Landed cost on port
USD/wmt
80
add: Domestic transportation cost
USD/wmt
0
Landed cost at plant
USD/wmt
80
USD/INR exchange rate = 61.5 IODEX 60 USD/T, CFR China basis;
Unit
USD/wmt
USD/wmt
USD/wmt
Dolvi
73
62
12
76
76
2
2
7
7
80
80
20
0
100
80
Source: MOSL
Tata
74
81
-7
2,400
360
1,800
4,560
74
RINL
62
62
0
2,400
360
1,050
3,810
62
Exhibit 17: Iron ore fines: landed cost to Indian steel mills (NMDC v/s imports)
(a) Landed cost from NMDC
(b) Landed cost of imports
NMDC premium/(discount) to imported
(a) calculations for landed cost from NMDC
Ex-Mine Price
INR/wmt
2,400
add: royalty @15%
INR/wmt
360
add: transportation/port handling
INR/wmt
1,750
Landed cost at plant
INR/wmt
4,510
Landed cost at plant
USD/wmt
73
(b) calculations for landed cost of imports
Iron ore lumps cfr
USD/dmt
60
less: moisture (8%)
USD/wmt
5
add: import duty (2.5%)
USD/wmt
6
Landed cost on port
USD/wmt
62
add: Domestic transportation cost
USD/wmt
0
Landed cost at plant
USD/wmt
62
USD/INR exchange rate = 61.5 IODEX 60 USD/T, CFR China basis;
Essar
60
62
-1
2,400
360
950
3,710
60
60
5
6
62
0
62
60
60
5
5
6
6
62
62
20
0
81
62
Source: MOSL
27 November 2014
10

NMDC
Cutting volumes, price, earnings estimates and target price
FY15E EBITDA cut 11%
to INR81b
We lower NMDC’s iron ore deliveries estimates by 2mt to 6.6mt for 3QFY15E (lost
shipment from Chhattisgarh sector due to Hudhud cyclone and lower offtake by
Essar Steel) and by 1mt to 8.6mt for 4QFY15E. Hence, FY15E volumes are cut by 3mt
to 31.1mt. We are also lowering iron ore prices by INR200/t QoQ to INR2,960 for
fines and by INR100/t to INR4,300 for lumps in 4QFY15E. Thus, the EBITDA estimate
is cut by 11% to INR81b for FY15E.
Exhibit 18: Realization (INR/t)
Source: MOSL
FY16E EBITDA cut 25%
to INR66.5b
We believe that the pricing dynamics for central and eastern region of the country
will differ materially from that in the western and southern regions. There are
infrastructure bottlenecks in the eastern and central parts of India, while there are
no hurdles in the west and south for importing iron ore. Unless NMDC adopts
pricing on delivered to customer basis (unlikely), it will struggle to push the
estimated growth in volumes, as low cost imports will crowd out its volumes.
Further, NMDC has disappointed in ramping up production in Karnataka sector.
Recently, the Supreme Court has cut NMDC’s Karnataka complex capacity by 3mtpa
to 9mtpa due to a delay in ramp-up. Thus, we cut the volumes for FY16E by 3mt to
33.6mt. Further, we lower the prices of iron ore fines to INR2,400 (v/s INR3,160/t
currently) and lumps to INR3,300/t (v/s INR4,400/t). NMDC’s export contracts will
expire by end-FY16. Since NMDC will face a loss of USD20/t at iron ore prices of
USD70/t, we assume that these contracts will not be renewed. Hence, FY16E EBITDA
is cut by 25% to INR66.5b.
27 November 2014
11

NMDC
Exhibit 19: Deliveries (mt)
Source: MOSL
Target price cut to
INR161/share (earlier
INR220/share)
We also cut the target price to INR161/share (earlier INR220) on a cut in FY16E
EBITDA by 25% to INR66.5b. Further, the iron ore sector is likely to get de-rated on
expected domestic oversupply and ease of imports. We lower the EV/EBITDA
multiple to 6x (v/s 6.5x earlier). Stock trades at FY16E EV/EBITDA of 5.6x, P/BV of
1.6x (RoE 18.6%). We have cut the expected dividend per share to INR8.5 v/s
INR10.5 for FY16E. Maintain
Buy.
Exhibit 20: Target price calculations (INR m)
Y/E March
EBITDA per ton (INR)
Volumes (m tons)
EBITDA
Target EV/EBITDA(x)
Target EV
Less: Net Debt
Add: CWIP @50% discount
Equity Value
Target price (INR/share)
2013
2,963
26.3
77,838
2014
2,548
30.5
77,713
2015E
2,615
31.1
81,201
6.0
487,206
-193,318
79,465
759,988
192
2016E
1,983
33.6
66,532
6.0
399,192
-188,083
51,097
638,371
161
2017E
2,001
37.6
75,158
6.0
450,951
-178,328
66,047
695,325
175
Source: MOSL
-210,258
32,808
-186,572
57,613
27 November 2014
12

NMDC
Financials and valuations
Income statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2012
112.6
-0.9
89.3
79.3
1.3
88.0
0.0
20.2
-0.5
107.6
34.9
32.5
72.7
73.0
12.3
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
2014
120.6
12.6
77.7
64.4
1.5
76.2
0.0
20.9
0.5
97.6
33.4
34.2
64.2
63.9
-3.6
2015E
129.0
7.0
81.2
62.9
1.7
79.5
0.0
21.5
0.0
101.0
33.1
32.7
67.9
67.9
6.3
(INR Billion)
2016E
104.2
-19.3
66.5
63.8
1.8
64.7
0.0
20.0
0.0
84.7
27.1
32.0
57.6
57.6
-15.2
2017E
116.6
11.9
75.2
64.4
2.0
73.1
0.0
18.5
0.0
91.6
29.3
32.0
62.3
62.3
8.2
Balance sheet
Y/E Mar
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
2012
4.0
240.1
244.1
0.0
1.0
245.1
23.9
12.0
11.9
19.1
2.5
233.0
4.6
7.4
202.6
18.4
21.4
6.4
15.0
211.6
245.1
2013
4.0
271.1
275.1
0.0
1.0
276.2
26.0
13.4
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
2014
4.0
295.9
299.9
0.0
1.1
301.0
28.5
14.9
13.6
57.6
2.5
241.0
6.8
14.5
186.6
33.2
13.8
11.1
2.7
227.2
301.0
2015E
4.0
324.4
328.4
0.0
1.1
329.5
32.5
16.5
16.0
79.5
2.5
243.1
4.2
12.4
193.3
33.2
11.6
8.8
2.7
231.5
329.5
(INR Billion)
2016E
2017E
4.0
4.0
342.6
365.5
346.6
369.4
0.0
0.0
1.1
1.1
347.6
370.5
36.5
40.5
18.4
20.4
18.1
20.1
102.2
132.1
2.5
2.5
234.7
226.5
3.4
3.8
10.0
11.2
188.1
178.3
33.2
33.2
9.9
10.7
7.1
8.0
2.7
2.7
224.8
215.8
347.6
370.5
E: MOSL Estimates
27 November 2014
13

NMDC
Financials and valuations
Ratios
Y/E Mar
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)
2012
18.4
18.7
61.6
4.5
26.3
7.7
7.5
2.3
3.2
4.0
3.2
33.5
49.3
0.5
23.9
14.9
23.9
-0.8
2013
16.7
16.4
69.4
7.0
51.1
8.4
8.6
2.0
3.3
4.5
5.0
25.5
37.9
0.4
36.9
21.7
36.9
-0.8
2014
16.1
16.6
75.6
8.5
61.4
8.7
8.5
1.9
3.1
4.8
6.0
22.2
33.7
0.4
43.8
20.6
43.8
-0.6
2015E
17.1
17.6
82.8
8.5
58.0
8.2
8.0
1.7
2.8
4.5
6.0
21.6
32.0
0.4
35.0
12.0
35.0
-0.6
2016E
14.5
15.0
87.4
8.5
68.5
9.7
9.4
1.6
3.6
5.6
6.0
17.1
25.0
0.3
35.0
12.0
35.0
-0.5
2017E
15.7
16.2
93.2
8.5
63.3
9.0
8.7
1.5
3.3
5.1
6.0
17.4
25.5
0.3
35.0
12.0
35.0
-0.5
Cash flow statement
Y/E Mar
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
2012
107.6
1.3
-20.2
0.0
-34.9
-7.1
44.0
-13.5
-1.1
0.0
-14.6
0.0
0.0
-19.1
20.2
1.1
30.4
172.3
202.6
2013
94.8
1.4
-22.4
0.0
-31.2
-9.0
33.5
-15.8
0.0
0.0
-15.8
0.0
0.0
-32.5
22.4
-10.1
7.6
202.6
210.3
2014
97.6
1.5
-20.9
0.0
-33.4
-22.7
22.1
-27.3
0.0
0.0
-27.3
0.0
0.0
-39.4
20.9
-18.5
-23.7
210.3
186.6
2015E
101.0
1.7
-21.5
0.0
-33.1
2.4
50.5
-25.9
0.0
0.0
-25.9
0.0
0.0
-39.4
21.5
-18.0
6.7
186.6
193.3
(INR Billion)
2016E
2017E
84.7
91.6
1.8
2.0
-20.0
-18.5
0.0
0.0
-27.1
-29.3
1.5
-0.7
40.9
45.1
-26.7
-33.9
0.0
0.0
0.0
0.0
-26.7
-33.9
0.0
0.0
0.0
0.0
-39.4
-39.4
20.0
18.5
-19.4
-20.9
-5.2
-9.8
193.3
188.1
188.1
178.3
E: MOSL Estimates
27 November 2014
14

NMDC
NOTES
27 November 2014
15

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