NMDC - Volume momentum continues - AXISDIRECT

We met the management of NMDC. Key takeaways: Volume growth of 8-11%YoY in Q2: Volumes continue to be strong in Q2 with July+August volumes at 4.2 mnt. The company expects Q2 volumes at 6.3-6.5 mnt, which implies growth of 8-11% YoY. The management expects volumes for full year to be at least 30 mnt. Our volume estimates for FY14 and FY15 are 29.3 mnt and 31.3 mnt.

No further downside to lump prices: Pellet exports from Odisha have picked up due to weak INR and global price recovery, thus improving domestic pellet prices. Hence NMDC does not see further downside in lump prices. Fines prices are also recovering in Odisha (Rs 200-300/ton) on weak INR and exports are becoming viable. Any cut in export duty from 30% will be positive for domestic prices.

Estimates and valuation

We raise our lump price estimate for FY14 and FY15 to Rs 4,300/t (current NMDC's price) vs. Rs 4,100/ton earlier. We also marginally raise our volume estimates for FY14 to 29.3 mnt (28.8 earlier) and for FY15 to 31.3 mnt (30.8 mnt). Thus, our revised EPS estimates for FY14 and FY15 are Rs 16 (Rs 15.5 earlier) andRs 15.6 (Rs 14.9 earlier) respectively

Maintain BUY with revised target price of Rs 135 (4x FY15E EV/EBITDA) vs. Rs 122 earlier. We have conservatively (a) not assigned any value to steel CWIP of Rs 70 bn (Rs 18/ share) and (b) assumed 50% increase in royalty to 15% (FY15 onwards) based on the recommendations by a government panel as NMDC might not be able to pass it on to consumers due to subdued demand environment

The company expects to maintain dividend payout at 40%+. Our dividend per share estimates for FY14 and FY15 is Rs 7/share, implying a dividend yield of 6%.

Source : Equity Bulls

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