NMDC's Q1FY20 results (Outperformer) - Firm iron ore prices; valuation inexpensive
Q1FY20 result highlights- Volume led growth
Higher than expected export realisations led to a 4% beat to our EBITDA estimates.
· NMDC reported better than expected EBITDA of Rs18.7bn, up 31% yoy primarily due to ~28% yoy higher volumes (8.7mt) and ~5% yoy higher realisation (Rs3,705/t, up 5% yoy) which in turn was higher due to firm domestic prices and higher export realisations (Rs6,072/t).
· Average domestic iron ore realisation (ex-royalty) was up by Rs89/Rs32 qoq/yoy to Rs2,916/t. Export realisation stood at Rs6,072/t, up 20% qoq. NMDC's export realisations are pegged to Platts 65% Fe Index and follows previous quarter (-) 2 month pricing methodology.
· Sales volumes at 8.7mt were up 28.4% yoy despite non operation of Donimalai mine during Q1FY20 as volumes from Kumaraswamy mine increased by 1.5mt yoy to 2.1mt and volumes from Chhattisgarh increased 12% yoy to 6.6mt. Export volumes stood at 0.6mt (nil in Q1FY19).
· NMDC’s blended average realisation stood at Rs3,705/t, up 4.8% yoy, whereas cost/t stood at Rs1,552, up 9% yoy due to absence of exports in base quarter. Adj. of selling expenses, cost/t stood at Rs1,392/t, down 2% qoq.
Key positives: Higher volumes and realisations, cost control
Impact on financials: Reduce FY21E PAT by 6% to factor in lower iron ore volumes and delay in commissioning of steel plant
Valuation & view: Retain Outperformer with TP of Rs159
Karnataka HC’s decision in favour of NMDC regarding Donimalai mines has alleviated the fears on lease renewal of mines in future. NMDC has been working with the Karnataka Govt to renew the lease of Donimalai mine which is expected to be completed within August2019. We expect domestic iron ore prices to remain stable in H2FY20 and have not factored in any increase in prices which can happen in case of any disruption in Odisha mining amid delay in mining auction. We expect delay in commissioning of NMDC’s 3-mtpa plant by further 6 months and expect commissioning by H1FY21E and accordingly factored in lower volumes in FY21e. We roll over valuation to FY21E earnings and value the iron ore business at 5.0x FY21E EV/EBITDA (Rs133/sh) and investment in steel plant at 50% of investment value (Rs26/sh) and arrived at a revised target price of Rs159. At CMP, market doesn’t ascribe any value to investment in steel plant (Rs157bn- Rs52/sh till Q1FY20). Reiterate Outperformer.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.