Q2FY20 result highlights- Absence of Donimalai volume and lower prices hit profits
Key positives: Higher volume from Chhattisgarh mines
Key Negatives: No volume from Donimalai mines, risk of penalty of Rs16.23bn to be paid if Supreme Court judgement in 2017 related to excess mining applies to NMDC
Valuation & view: Retain Outperformer with TP of Rs131
We believe that NMDC’s Chhattisgarh mines will not have any risk of renewal and will be done by Q4FY20. However, uncertainity remains on resumption of Donimalai mines as Karnataka government has not permitted the same yet despite amendment of Mineral (mining by Government Company) Rules, 2015 by Central government wherein it has made mandatory for state governments to extend the mining leases held by Government company. Moreover, Govt is trying its best not to disrupt iron ore supply amid ongoing Odisha mines auction which will restrict any meaningful increase in domestic iron ore prices. We have not built in any increase in iron ore prices in FY20. Its 3mtpa steel plant is expected to be completed by 1HFY21-end. The stock trades at 4.7x FY21E EV/EBITDA. We value the iron ore business at 5.0x EV/EBITDA FY21E (Rs105/sh) and investment in steel plant at Rs26/sh (50% of CWIP) and arrive at our target price of Rs131/sh. Reiterate Outperformer on cheap valuation.
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.