MOSL: NMDC (Buy)-Stellar performance-demand fundamentals strong; Valuations compelling
NMDC: Stellar performance; demand fundamentals strong; Valuations compelling; Maintain Buy
(NMDC IN, Mkt Cap USD5.6b, CMP INR119, TP INR178, 50% Upside, Buy)
- NMDC’s 4QFY18 adj. EBITDA increased 56% QoQ (+46% YoY) to INR20.8b, led by a 31% QoQ (+8% YoY) increase in iron ore sales volumes to 10.5mt and 23% QoQ (+27% YoY) higher prices, partly offset by a higher wage bill. EBITDA is adjusted for (a) rail line doubling payment of INR771m and (b) expected credit loss of INR1.04b, which are non-recurring. EBITDA per ton grew 20% QoQ to INR1,976 (USD30). Adj. PAT grew 61% QoQ to INR13.7b.
- For FY18, adj. EBITDA increased 41% to INR63.2b, driven by 1.3% growth in iron ore sales volumes to 36.1mt and a 30% increase in prices. Adj. PAT increased 32% to INR41.4b. NMDC paid a dividend of INR5.3/share – a payout ratio of 53% and a yield of 4.4% at CMP. Net cash declined slightly to INR49b, after incurring a capex of ~INR17b, dividend payout of ~INR20b and working capital increase of INR8b.
Valuations compelling; Maintain Buy
- We believe that iron ore fundamentals are strong in India, with its key customers RINL and JSW Steel increasing steel production. This is allowing NMDC to keep its prices steady, despite volatility in the international market. News reports suggest that even SAIL may have to procure iron ore from NMDC due to insufficient production at its mines in Chhattisgarh.
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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