NMDC - Iron Ore Price Cut Again, But Valuation Attractive; Retain Buy - Nirmal Bang Institution Desk

BUY
CMP: Rs100
Target Price: Rs147
Upside: 47%

NMDC has cut the prices of lumps and fines by Rs200/tn (4.3%) and Rs100/tn (3.8%), respectively, for the month of July 2013 because of weak demand from the steel sector. The price cut remains a bit surprising considering the steady volume growth of 5.8% witnessed in 1QFY14, but we believe that 14% and 39% correction in the share price over the past one month and six months, respectively, (as compared to 1% and 3% fall, respectively, in Nifty in the same period), factors in the the subdued pricing environment. We have revised our realisation assumptions downward by 4%/3% for FY14E/FY15E, respectively, leading to a 8% drop in EBITDA for FY14E and FY15E each. Our PAT estimates for FY14E and FY15E have also been revised downward by 6% each. We have also cut our target price from Rs164 to Rs147 following the reduction in our earning estimates and the cut in EV/EBITDA multiple from 4.8x FY15E to 4.5x FY15E on account of subdued earnings growth profile and deteriorating return ratios. We have also lowered the value of steel business CWIP from 80% to 60% on concerns over the delay in plant commissioning and subdued return ratios. Our revised target price of Rs147 is 47% above the current market price.

Source : Equity Bulls

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