Topline for the quarter declined 27.4% yoy to Rs20.5bn on account of both, lower realisations and volumes. The company’s iron ore sales volume declined 17.2% yoy to 5.3mn tons due to low off-take by customers and heavy rainfall in Karnataka. On a qoq basis, sales volume decreased 9.5% qoq. Production too declined 25.9% yoy basis to 5.3mn tons, touching its two year low. Blended realizations for the quarter was declined sharply by 12.4% yoy and 13.4% qoq at Rs3,864/ton, quite lower than our estimate. We are negatively surprised by the sharp fall in realizations as the company had taken price cuts only in a phased manner. The company at the start of the quarter shifted to its monthly pricing policy and had announced a price cut of 2% for lumps and 11% for fines in October. This was followed by price cuts of 11% for lumps and 3% for fines in November before maintaining status quo in December ’12. We believe the sharp drop in realizations would be on account of higher percentage share of fines of total sales. Offtake of high grade iron ore in the Karnataka e-auctions was lower due to strong iron ore prices.
The company is quite confident in achieving its previous year production of 27.3mn tons. It has indicated that improved performance in Q4 FY13 would offset the loss of volumes in 9M FY13. NMDC has already produced 3mn tons in January ’13, its highest monthly production ever. We believe it would be able to sell ~8mn tons of iron ore in Q4 FY13 which would largely offset the lower volumes in 9M FY13.
|(Rs m)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|Production volumes (mn tons)||5.3||7.2||(25.9)||6.2||(14.1)|
|Sales volume (mn tons)||5.3||6.4||(17.2)||5.9||(9.5)|
Operating profit of Rs13.9bn was lower by 38.5% yoy and 28.1% qoq. It was also lower than our estimate of Rs16bn largely on account of lower realisations. EBIDTA/ton declined sharply from Rs3,532/ton in Q2 FY13 to Rs2,625/ton due to a jump in freight costs and lower realisations. The company had exported some iron ore leading to an increase in iron ore transportation costs. Costs per ton of ore increased from Rs1,157/ton in Q2 FY13 to Rs1,239/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 25.7% due to higher costs and weaker realizations.
NMDC has corrected sharply over the last two months on the back of weak iron ore prices globally, subdued domestic steel demand and Government’s divestment. NMDC’s iron ore realizations are expected to remain resilient to the slide in global iron ore prices as we estimate the domestic iron ore market to remain tight. Volumes are expected to rise in FY14 led by commissioning of the uni-flow system and the Bailadila 11B mine coupled with higher contribution from Karnataka. We expect earnings CAGR of 6.4% over the period FY12-15 on the back of strong volume growth. At the current stock price, the market seems to be building in too much pessimism into the stock. The stock is currently trading at 3.5x FY14E EV/EBIDTA, which is at a huge discount to its historical one year forward EV/EBIDTA of 12.6. We maintain our Buy recommendation on the stock with a 9-month price target of Rs182.
|(Rs mn)||Q3 FY13||Q3 FY12||% yoy||Q2 FY13||% qoq|
|OPM (%)||67.9||80.1||(1,217) bps||74.1||(613) bps|
|Effective tax rate (%)||32.4||32.4||32.4|
|Adj. PAT margin (%)||63.1||65.9||(274) bps||64.3||(113) bps|
|Ann. EPS (Rs)||13.0||18.8||(30.5)||16.9||(23.0)|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|yoy growth (%)||(0.9)||1.1||4.9||12.5|
|yoy growth (%)||12.6||2.3||4.8||12.3|