MOSL : NMDC: Strong result, but priced in; Maintain Neutral
NMDC: Strong result, but priced in; Maintain Neutral
(NMDC IN, Mkt Cap USD4.1b, CMP INR111, TP INR124, 12% Upside, Neutral)
- Net sales declined 27% YoY and 29% QoQ to INR48b in 1QFY23 (inline). Iron ore sales were down 14% YoY and 36% QoQ to 7.8mt. The sharp correction in 1QFY23 sales volume was on account of a reduction in steel production after the imposition of export duty on steel and pellets.
- EBITDA contracted by 55% YoY and 29% QoQ to INR19b, but was 17% ahead of our estimate, despite a higher than estimated royalty and cess (including additional royalty) of 23% due to a sharp decline in operating expenses, which fell 63% QoQ (38% below our estimate). EBITDA/t declined by 48% YoY to INR2,434/t, but rose 11% QoQ led by 11% higher ASP QoQ.
- APAT fell 54% YoY and 27% QoQ to INR15b, 14% ahead of our estimate, driven by EBITDA beat, but was partly offset by higher than estimated depreciation and interest charges.
Lower iron ore sales due to export duty on pellets and thermal coal cost
- NMDC has reduced the price of iron ore fines/lumps by INR2,350/INR2,200 per tonne since the imposition of export duty of 15% on steel (mostly flats, non-alloy), 50% on iron ore (all grades), and 45% on pellets.
- We note that unless the pellet exports resume, India will continue to have a marginal surplus of iron ore. The change in the export duty structure on iron ore doesn’t lead to a big change in our view as the export duty of 30% was anyways present on lumps and fines over 58% Fe. The lower Fe content ore is hardly used by the industry, and hence the impact of a change in export duty on iron ore is not meaningful.
- However, the impact of pellet exports and the rising cost of thermal coal has led to lower DRI production in 1QFY23, impacting iron ore sales for the industry as well as for NMDC.
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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