NMDC analyst meet update - Angel Broking

We attended the analyst meet of NMDC to discuss its 4QFY2013 results. The company has guided for a production of 30-32mn tonnes in FY2014. However, we continue to model 28mn tonnes of production and sales volumes for FY2014 to account for slowdown in steel demand in India and also considering the (lower) evacuation capability of NMDC. The company has a target of 2.2-2.8mn tonnes of exports for FY2014 and the ratio of lump to fines is likely to be maintained at 35:65.

The company stated that only SAIL and RINL have shown interest in buying 49% stake in the upcoming 3MTPA steel plant in Chhattisgarh, however there is no final agreement on this as yet. We believe the steel project is not likely to be value accretive to NMDC and hence partial divestment of the project is likely to be positive for the company.

After frequent lowering of iron ore prices during January- April 2013, the company has maintained its prices since. The company's expansion projects are on track and the company has guided for a capex of Rs. 2,720cr for FY2014.

Outlook and valuation: NMDC has lowered its prices over the past six month due to slowdown in steel demand in India. Nevertheless, we believe the sharp decline in NMDC's stock price more than discounts this. For investors who bypass a strong balance sheet, presence in sellers market (iron ore), low cost of production, highgrade mines, long mine life, bypassing high dividend yield (6.8% at CMP) would be a challenge in our view. We believe NMDC is an attractive bet at FY2015 EV/EBITDA of 2.6x. Valuing the stock at 5.0x FY2015E EV/EBITDA, we derive a fair price of Rs. 156 and maintain our Buy rating on the stock.

Source : Equity Bulls

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