NMDC's Q4FY18 results (Outperformer) - Factors only iron ore earnings
Q4FY18 result highlights- one off costs lead to margin miss
- NMDC (NMDC IN) reported EBITDA of Rs 19bn though up 104% yoy due to higher realization and volume but was lower-than-expected due to certain one off costs related to employee and higher CSR expenses. Adjusted for one off cost of ~Rs2.5bn, adjusted EBITDA stood at Rs21.5bn, up 130% yoy and EBITDA/t of Rs2,036 (up 114% yoy).
- Net sales, at Rs38.8bn, was up 35% yoy due to 26% yoy higher blended iron ore realization to Rs3,653/t coupled with ~8% yoy higher volume (10.54mt). Domestic iron ore realization ex statutory levies was up 35% yoy to Rs3,013/t.
- EBITDA includes one off cost of ~Rs2.5bn comprises of ~Rs900m as one time welfare expenses on account of diamond jubilee celebration, ~Rs688m on account of higher provision of wage revision of workmen for earlier quarters, ~Rs450m due to absence of input tax credit post GST at Karnataka mines and ~Rs400m provided to state government for few iron ore projects. Adjusted for the above, EBITDA stood at Rs21.5bn, up 130% yoy
- Net cash stood lower at Rs49.4bn at FY18-end from Rs58bn at Q3FY18 as the company paid dividend of Rs4.3/sh in March.
Key positives: Higher iron ore realisation & volume
Key negatives: One off costs
Impact on financials: Increased FY19E EBITDA by 6% to factor in higher iron ore prices, partially offset by lower volume
Valuation & view: Retain Outperformer with TP of Rs157
We believe that JSW Steel will soon start procuring iron ore from NMDC for its Karnataka plant, limiting the downside in NMDC’s volume in FY19. Higher iron ore prices more than offset the lower volume and lead to 14% yoy increase in EBITDA in FY19 to Rs66.1bn. We believe that CMP factors in only iron ore earnings and do not factor in the investment in upcoming 3-mtpa steel plant which is expected to be commissioned by FY20E. NMDC has already invested Rs139bn in the steel plant till FY18. As a result, we believe the downside is limited in the stock. We value the iron ore business at 5.5x FY20E EV/EBITDA (Rs119/sh) and investments in the steel plant at Rs38/sh (60% of FY20E CWIP) and arrive at a fair value of Rs157. We expect NMDC to provide DPS of Rs6 inFY19, providing 5%dividend yield. 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.
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