MOSL: NMDC (Buy)-Outperformance driven by higher realization-Valuations attractive
NMDC: Outperformance driven by higher realization; Valuations attractive but risk from special premiums
(NMDC IN, Mkt Cap USD4.3b, CMP INR97, TP INR111, 15% Upside, Buy)
- EBITDA increased 65% QoQ (+71% YoY) to INR22.8b in 3QFY19, 13% ahead of our estimate of INR20.2b, led by higher-than-expected realization. EBITDA is adjusted for (a) rail line doubling payment of INR528m and (b) expected credit loss of INR717m, which is non-recurring. Adj. PAT increased 63% QoQ (+76% YoY) to INR15.1b (our estimate: INR12.7b).
- Production increased 81% QoQ (+11% YoY) to 9.5mt, while sales grew 30% QoQ (+8% YoY) to 8.7mt, led by higher offtake from Chhattisgarh.
- Domestic realization increased INR550 QoQ to INR4,185/t, as against our estimate of INR3,668/t.
- EBITDA per ton increased 27% QoQ to INR2,618 (USD36), led by higher realization and operating leverage benefits.
Valuations attractive but risk from special mining premium; Maintain Buy
- We raise our FY19 EPS estimate by 8% to account for the beat. Operations at the Donimalai mine remain suspended. However, we expect NMDC to eventually get its MLs renewed without sharing any revenue. Steel plant may have some teething troubles in the initial years, but it is likely to be a valuable asset, as it will enjoy low-cost iron ore, economy of scale and high productivity. We value the stock at INR111/share, based on 3x EV/EBITDA for book value for CWIP at the end of FY20. Maintain Buy.
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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