Q4FY19 result highlights- Good show amid volume loss of Donimalai
Lower than expected costs led to a beat of 13% to our EBITDA estimates.
Key positives: Cost under control, price hike of Rs250/t w.e.f. 25th May
Key negatives: Lower iron ore prices, volume
Impact on financials: Increase FY20E EBITDA by 3% to factor in higher prices.
Valuation & view: Retain Outperformer with revised TP of Rs168
NMDC’s current iron ore prices are ~Rs260/t higher than Q4FY19 average. We expect domestic iron ore prices to remain firm and accordingly increased NMDC’s average blended realisation by ~Rs160/t in FY20E to factor in high domestic prices and higher export realisation (US$85/t, earlier US$75/t). We expect Karnataka High Court to rule in favour of NMDC (on issue of Donimalai mine) in June 2019, allaying fears of future mining operations of NMDC. However, we have cut FY20E volumes by 1.2mt to factor in volume loss from Donimalai in Q1FY20. We expect company’s 3-mtpa steel plant to be commissioned by FY20-end. Our revised target price stands at Rs168/sh (earlier Rs160/sh), valuing the iron ore business at 5.5x FY20E EV/EBITDA (Rs141/sh) and investments in the steel plant at Rs27/sh (50% of FY20E CWIP). At CMP, it is trading cheaply at 3.9x FY20E EV/EBITDA.
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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