MOSL: NMDC (Buy)-Healthy margins despite seasonally weak volumes-Valuations attractive
NMDC: Healthy margins despite seasonally weak volumes; Valuations attractive, but risk from special premiums; Maintain Buy
(NMDC IN, Mkt Cap USD4.7b, CMP INR107, TP INR175, 63% Upside, Buy)
2QFY19 adjusted EBITDA declined 7% QoQ (+8% YoY) to INR13.8b, marginally below our estimate of INR14.8b due to lower-than-expected realization and higher operating expenses. EBITDA is adjusted for (a) rail line doubling payment of INR480m and (b) expected credit loss of INR747m, which are non-recurring. Adjusted PAT declined 6% QoQ (+9% YoY) to INR9.1b (our estimate: INR9.2b).
- Production was down 25% QoQ (-27% YoY) to 5.3mt, while sales declined 1% QoQ (-19% YoY) to 6.7mt due to lower offtake from Chhattisgarh.
- Domestic realization increased INR62 QoQ to INR3,635/t (our estimate: INR3,800). Higher discounting at Karnataka impacted realization.
- EBITDA per ton declined 6% QoQ to INR2,061 (USD30) due to higher operating expenses.
Valuations attractive, but risk from special mining premium; Maintain Buy
- NMDC’s volumes were impacted over the last few quarters due to higher prices and monsoon-related disruption. Domestic prices have become competitive as global iron ore prices have strengthened.
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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