NMDC - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, NMDC's result was below our estimates on account of lower-than-expected sales volumes. We downgrade the stock from Buy to Accumulate.

Volumes declines 22.8% yoy: NMDC's net sales fell by 14.7% yoy to Rs.2,612cr mainly due to lower volumes which declined 22.8% yoy to 5.85MT. Iron ore sales volumes were low due to lower off take from the e-auctions by the company and lower production volumes. Although iron ore realization increased 10.2% yoy to Rs.4,442/tonne, it was offset by higher selling costs which grew by 259.8% yoy to Rs.213cr.

EBITDA/tonne increased by 2.9% yoy: During the quarter, the company's EBITDA declined by 20.6% yoy to Rs.1,935cr and EBITDA margin contracted 545bp yoy to 74.1%. However, EBITDA/tonne increased by 2.9% yoy to Rs.3,307 due to higher average realization. The net profit decreased by 14.5% yoy to Rs.1,678cr.

Outlook and valuation: Over the past five years, NMDC has traded at an EV/EBITDA range of 4.0x-13.4x. Currently, it is trading at an inexpensive valuation (and towards its lower end of its historical range) of 4.9x FY2014E EV/EBITDA. 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 5.5x FY2014E EV/EBITDA, we derive a fair price of Rs.198 and recommend Accumulate on the stock.

Source : Equity Bulls

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