NMDC Ltd (Q1 FY14)

India Infoline News Service | Mumbai |

NMDC’s topline of Rs28.7bn was higher than our estimate of Rs26.3bn, the outperformance in topline was higher due to higher realizations An increase in exports led to higher than expected realisations for the quarter. ASP for the quarter stood at Rs3,954/ton, marginally higher on a qoq basis

CMP Rs100, Target Rs145, Upside 45.1%

NMDC’s topline of Rs28.7bn was higher than our estimate of Rs26.3bn, the outperformance in topline was higher due to higher realizations
An increase in exports led to higher than expected realisations for the quarter. ASP for the quarter stood at Rs3,954/ton, marginally higher on a qoq basis
Sales volume increased by 5.9% yoy to 7.3mn tons and production jumped 12.5% yoy to 6.8mn tons led by improved operations at Karnataka
NMDC exported 0.5mn tons of iron ore against nil in Q1 FY13
NMDC has reduced lump prices by Rs400/ton and that of fines by Rs100/ton over the last two months
Maintain Buy with a 9-month price target of Rs145.
Result table
(Rs mn) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Net sales 28,706 28,404 1.1 32,043 (10.4)
Material costs (900) (492) 82.9 (350) 156.8
Personnel costs (1,483) (1,353) 9.7 (1,615) (8.1)
Selling expenses (2,911) (361) 706.3 (3,929) (25.9)
Other overheads (4,361) (3,178) 37.2 (4,593) (5.1)
Operating profit 19,052 23,020 (17.2) 21,556 (11.6)
OPM (%) 66.4 81.0 (1468) bps 67.3 (90) bps
Depreciation (364) (328) 10.9 (387) (6.0)
Interest - - - (132) (100.0)
Other income 5,209 5,521 (5.7) 5,474 (4.8)
PBT 23,897 28,214 (15.3) 26,511 (9.9)
Tax (8,176) (9,154) (10.7) (7,804) 4.8
Effective tax rate (%) 34.2 32.4
29.4
Adjusted PAT 15,722 19,060 (17.5) 18,707 (16.0)
Adj. PAT margin (%) 54.8 67.1 (1234) bps 58.4 (361) bps
Extra ordinary items -
- (4,058) (100.0)
Reported PAT 15,722 19,060 (17.5) 14,650 7.3
Ann. EPS (Rs) 15.9 19.2 (17.5) 18.9 (16.0)
Source: Company, India Infoline Research

Topline outperformance due to increase in exports
NMDC reported a growth of 1.1% yoy in topline on the back of higher volumes. Topline for the quarter stood at Rs28.7bn, higher than our estimate of Rs26.3bn due to higher than expected realisations. An increase in exports led to higher than expected realisations for the company. NMDC exported 0.5mn tons of iron ore against nil in Q1 FY13. ASPs for the quarter stood at Rs3,954/ton, marginally higher on a qoq basis and quite higher than our estimate of 7% qoq decline. NMDC managed to sell 7.3mn tons during the quarter led by higher contribution from Karnataka mines. Sales from Karnataka jumped 13.8% yoy to 2.23mn tons quite higher than 2.65% achieved in Chhattisgarh. However, production was lower by 1.7% yoy at its Chhattisgarh mines. NMDC in the last two months has lowered its lump prices from Rs4,600/ton to Rs4,200/ton and has also reduced its iron ore fine prices by Rs100 to Rs2,510/ton.

Operating profit declined due to higher exports
Operating profit of Rs19.1bn was higher than our estimate of Rs18.1bn. The outperformance was led by lower royalty outgo during the quarter. All other costs were higher than our estimate due to higher than expected exports. Selling costs jumped 7x yoy to Rs2.9bn as the company exported 0.49mn tons of iron ore against nil exports in Q1 FY13. Operating profit on a yoy basis was impacted by the tax levied by the Karnataka Government. 10% of proceeds from sale at Donimalai mine amounting to Rs660mn led to the decline in profit. Royalty per ton of iron ore sold declined by 17% qoq, a surprise to us. EBIDTA/ton was flat on a qoq basis, but was lower by 21.9% yoy. EBIDTA/ton was higher than estimate due to higher realizations and lower royalty. Costs per ton of ore increased from Rs1,273/ton in Q4 FY13 to Rs1,330/ton during the quarter. The increase in costs was also on account of the diesel price hikes.
 
Cost Analysis
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Production volumes (mn tons) 6.8 6.1 12.5 9.6 (28.6)
Sales volume (mn tons) 7.3 6.9 5.9 8.2 (11.9)
Realisation (Rs/ton) 3,954 4,143 (4.6) 3,889 1.7
EBIDTA/ton (RS/ton) 2,624 3,358 (21.9) 2,616 0.3
Source: Company, India Infoline Research

Cost Analysis
As a % of net sales Q1 FY14 Q1 FY13 bps yoy Q4 FY13 bps qoq
Material costs 3.1 1.7 140 1.1 204
Personnel costs 5.2 4.8 40 5.0 13
Selling expenses 10.1 1.3 887 12.3 (212)
Other overheads 15.2 11.2 400 14.3 86
Total costs 33.6 19.0 1,468 32.7 90
Source: Company, India Infoline Research

Downside limited; Maintain Buy
NMDC has corrected sharply over the last six months on account of subdued domestic steel demand, Government’s divestment, volume disappointment in 9M FY13 and a sharp cut in iron ore lump prices in Q4 FY13. We believe the disappointment on both volumes and realizations is quite limited in the near term. With the global iron ore prices staying comfortably above the US$110/ton level and the domestic market tight, we believe that average realisation for NMDC will form a bottom in Q2 FY14. Post Q2 FY14 we don’t expect any price cuts and estimate iron ore prices to remain flat in H2 FY14 due to a tight demand-supply situation. Volumes recovered in Q4 FY13 after a poor performance in 9M FY13 and have been steady in Q1 FY14. We expect volumes to increase in FY14 led by commissioning of the uni-flow system and the Bailadila 11B mine coupled with higher contribution from Karnataka. We expect iron ore volumes to witness a CAGR of 8% over the period FY13-15 as the impact of the new mines would be experienced in FY15E. At the current stock price, the market seems to be building in too much pessimism into the stock. The stock is currently trading at 2.3x FY15E EV/EBIDTA, which is at a huge discount to its historical one year forward EV/EBIDTA of 12.6 and also to its peers. We value the company at 4.5x FY15E EV/EBIDTA and arrive at a revised 9-month price target of Rs145.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues 112,619 107,043 104,688 113,623
yoy growth (%) (0.9) (5.0) (2.2) 8.5
Operating profit 89,821 73,780 67,493
BSE 128.45 0.05 (0.04%)
NSE 128.10 [0.50] ([0.39]%)

***Note: This is a NSE Chart

 

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