Event
Govt. of Karnataka did not renew the mining lease of Donimalai mine of NMDC and starts preparing to put the mine under auction.
Details
Valuation & view: Downgrade to underperformer with TP of Rs72
NMDC does not provide any earnings visibility beyond FY20 as majority of its Chhattisgarh mines are due for renewal in Mar-20 (~15mt of production) and Kumaraswamy mine in Karnataka are due for renewal in Oct-22. We are not sure about the outcome of future lease renewals. We remain cautious on the stock until further clarity emerges on renewal of Chhattisgarh mines. We change the valuation methodology and value it on P/B basis. We value the iron ore business at 0.5x P/B FY20E (Rs46/sh) and investment in steel plant at Rs26/sh (50% of CWIP). Accordingly, we revise downward our target price to Rs72/sh (earlier Rs158/sh). Downgrade stock to underperformer.
NMDC Limited is an India-based company engaged in mining of iron ore. The Company's segments include Iron Ore, and Other minerals & services. It is also engaged in the production and sale of diamond, sponge iron and wind power. Its projects under construction include Bailadila Deposit-11/B, Kumaraswamy Iron Ore Project, 1.2 million tons per annum (MTPA) Pellet Plant at Donimalai, 3.0 million tons per annum (MTPA) Integrated Steel Plant in Chhattisgarh, Panthal Magnesite Project, Screening Plant III at Kirandul Complex, Screening Plant II at Donimalai Complex, doubling of Railway Line between Kirandul and Jagdalpur, Steel Plant at Bellary and Rail Link between Dalli-Rajhara-Rowghat-Jagdalpur Railway Line Project. It proposes to diversify into other commodities, such as steel making raw materials (coking coal, manganese ore nickel); fertilizer raw materials (rock phosphate potash), and thermal coal. It also proposes to invest in raw materials, such as tungsten and rare earth minerals.
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