MOSL: NMDC (Buy)-Strong operating performance-Some risk to pricing, but valuations are compelling
​NMDC: Strong operating performance; Some risk to pricing, but valuations are compelling; Buy
(NMDC IN, Mkt Cap USD6.1b, CMP INR126, TP INR187, 48% Upside, Buy)
- 2QFY18 adj. EBITDA grew 56% YoY (-21% QoQ) to INR12.8b. The beat of 10% is driven by higher-than-expected realization and lower cost. EBITDA is adjusted for (a) rail line doubling payment of INR92m and (b) expected credit loss of INR726m, which are non-recurring. Adj. PAT grew 42% YoY to INR8.9b.
- Sales increased 4% YoY (-10% QoQ) to 8.3mt, while production grew 14% YoY (-16% QoQ) to 7.2mt. Share in exports declined 180bp QoQ to 6.2%.
- Domestic sales realization declined INR103/t QoQ to INR2,836/t, surprising positively (est. of INR2,705/t), due to higher share of Karnataka volumes at 38% (est. of 28%) and higher product and regional premiums. Exports NSR was down USD12/t QoQ to USD64/t.
- EBITDA per ton declined INR215 QoQ to INR1,549 on lower realization.
Some risk to pricing, but valuations compelling; Reiterate Buy
- Global iron ore prices have corrected on demand concerns in China due to winter steel production cuts. NMDC's iron ore volumes have suffered in recent months due to price pressure. There is likelihood of price cuts if NMDC has to sustain volume growth. NMDC can supply 20% more volumes without additional capex. We expect ~6% volume CAGR over FY17-20.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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