NMDC Ltd (Q4 FY13)

India Infoline News Service | Mumbai |

Q4 FY13 profit impacted by one-off costs related to iron ore sales in Karnataka

CMP Rs117, Target Rs154, Upside31.9%

  • Topline of Rs32bn was higher by 23.5% yoy and above our estimate of Rs30.9bn
  • The outperformance in topline was due to a marginal increase in realizations against our expectation of a marginal decline
  • Q4 FY13 profit impacted by one-off costs related to iron ore sales in Karnataka
  • Adjusted for expenses of Rs4bn related to Karnataka, operating profit stood at 26.5bn, lower than our estimate. Selling expenses increased due to higher export volumes
  • NMDC has kept its prices unchanged for the month of June
  • Maintain Buy with a revised 9-month price target of Rs154.
Result table
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 32,043 25,946 23.5 20,477 56.5
Material costs (350) (473) (25.9) (231) 52.0
Personnel costs (1,615) (1,265) 27.6 (1,392) 16.0
Selling expenses (3,929) 23 - (1,764) 122.7
Other overheads (4,593) (4,457) 3.1 (3,178) 44.5
Operating profit 21,556 19,774 9.0 13,913 54.9
OPM (%) 67.3 76.2 (894) bps 67.9 (67) bps
Depreciation (387) (321) 20.3 (339) 14.2
Interest (132) (15) - - -
Other income 5,474 5,468 0.1 5,563 (1.6)
PBT 26,511 24,905 6.4 19,137 38.5
Tax (7,804) (7,970) (2.1) (6,209) 25.7
Effective tax rate (%) 29.4 32.0
32.4
Adjusted PAT 18,707 16,936 10.5 12,928 44.7
Adj. PAT margin (%) 58.4 65.3 (689) bps 63.1 (475) bps
Extra ordinary items (4,058) - - - -
Reported PAT 14,650 16,936 (13.5) 12,928 13.3
Ann. EPS (Rs) 14.8 17.1 (13.5) 13.0 13.3
Source: Company, India Infoline Research

Higher volumes boost topline growth by 23.5% yoy
NMDC reported a strong growth of 23.5% yoy in topline on the back of higher volumes. Topline for the quarter stood at Rs32bn, higher than our estimate of Rs31bn. NMDC managed to sell 8.2mn tons during the quarter, its highest quarterly sales volume in the last two years. This helped the company finish the full year with sales of 26.3mn tons, 4% lower on a yoy basis. Blended realisations of Rs3,889/ton was marginally higher on a qoq basis and also above our estimate of Rs3,764/ton. We believe the outperformance was due to increase in export volumes and higher proportion of lumps compared to fines. Export volumes stood at 0.87mn tons against 0.73mn tons achieved in 9M FY13. NMDC in the first four months has lowered its lump prices by 15% from Rs5,400/ton in December to Rs4,600/ton.

Operating profit declined due to higher exports

NMDC reported a 11.5% yoy decline in its reported profit to Rs17.5bn, which included a one-off fee of Rs687mn as fine and full year expense of Rs3.4bn towards its operations in Karnataka. The Supreme Court had ordered all miners in Karnataka to pay 10% of their sales proceeds towards a Special Purpose Vehicle for reclamation and rehabilitation purpose and had imposed a fine of Rs686.6mn on NMDC for violation of norms. Excluding the above two items, operating profit stood at Rs21.5bn, higher by 9% yoy and 54.9% qoq. It was lower than our estimate of Rs23.3bn largely on account of higher selling expenses. Adjusted EBIDTA/ton was flat on a qoq basis, but was lower by 15.3% yoy. EBIDTA/ton was lower than estimate due to a jump in freight costs. The company’s export continued to rise leading to an increase in iron ore transportation costs. Costs per ton of ore increased from Rs1,239/ton in Q3 FY13 to Rs1,273/ton during the quarter. The increase in costs was also on account of the diesel price hikes. On a yoy basis, EBIDTA/ton was lower by 15.3% due to higher costs and weaker realizations.

Cost Analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY13 bps qoq
Production volumes (mn tons) 9.6 7.0 36.4 5.3 80.6
Sales volume (mn tons) 8.2 6.4 28.8 5.3 55.5
Realisation (Rs/ton) 3,889 4,054 (4.1) 3,864 0.6
EBIDTA/ton (RS/ton) 2,616 3,090 (15.3) 2,625 (0.3)
Source: Company, India Infoline Research

Cost Analysis
As a % of net sales Q4 FY13 Q4 FY12 bps yoy Q3 FY12 bps qoq
Material costs 1.1 1.8 (73) 1.1 (3)
Personnel costs 5.0 4.9 16 6.8 (176)
Selling expenses 12.3 (0.1) 1,235 8.6 365
Other overheads 14.3 17.2 (284) 15.5 (119)
Total costs 32.7 23.8 894 32.1 67
Source: Company, India Infoline Research

Aluminium volumes to boost earnings in FY15; Maintain Buy
NMDC has corrected sharply over the last six months (down 37%) 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. After the 15% cut in iron ore lumps prices announced over the last four months, we believe there would be very little iron ore price cuts over the next one year. Volumes too recovered in Q4 FY13 after a poor performance in 9M FY13. NMDC managed to register a 28.5% yoy growth in volumes in Q4 FY13 after registering a decline of 14% in 9M FY13. We expect volumes to increase in FY14 led by commissioning of the uni-flow system and higher contribution from Karnataka. We value the company at 5x FY14E EV/EBIDTA and arrive at a revised 9-month price target of Rs154. Despite the cut in our target price, we still maintain our BUY recommendation as we see 32% upside to our revised target price from CMP.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 112,619 107,043 106,138 119,056
yoy growth (%) (0.9) (5.0) (0.8) 12.2
Operating profit 89,262 77,838 78,072 87,723
OPM (%)
BSE 128.40 [1.65] ([1.27]%)
NSE 128.60 [1.40] ([1.08]%)

***Note: This is a NSE Chart

 

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