NMDC - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, NMDC's profits were higher than our estimates on account of better-than-expected sales volumes. We recommend Accumulate on the stock.

Realization rises 3.0% yoy and 3.9% qoq: NMDC's net sales increased by 2.1% yoy to Rs.2,840cr (slightly above our estimate of Rs.2,706cr). Blended realization also increased during the quarter (3.0% yoy and 3.9% qoq to Rs.4,136/tonne). Iron ore sales volumes, however, declined by 1.4% yoy to 6.8mn tonne. Iron ore sales volumes were affected due to breakdown of a slurry pipeline in Bailadila mines which although were partially offset by commissioning of the uniflow dispatch system.

EBITDA/tonne increased by 3.6% yoy: During the quarter, the company's EBITDA increased by 2.1% yoy to Rs.2,302cr, lower than the decline in sales. As a result the EBITDA margin remained flat yoy at 81.0%. The EBITDA/tonne increased by 3.6% yoy and 10.5% qoq to Rs.3,385 due to higher average realization. Other income increased by 25.0% yoy to Rs.552cr on account of higher yields as well as higher cash balances on a y-o-y basis. Hence, the PAT also increased by 5.8% yoy to Rs.1,906cr (above our estimate of Rs.1,735cr).

Outlook and valuation: Over the past five years, NMDC has traded at an average EV/EBITDA of 13.7x, compared to its current valuation of 4.5x FY2014E EV/EBITDA. A strong balance sheet, presence in sellers market (iron ore), low cost of production, high-grade mines and long mine life make NMDC an attractive bet at these levels. Valuing the stock at 5.0x FY2014E EV/EBITDA, we derive a fair price of Rs.200 and recommend Accumulate on the stock.

Source : Equity Bulls

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