Angel Broking recommends Accumulate on NMDC with a Target Price of Rs 158 (12 months)

NMDC's 3QFY2014 net sales and net profit were both in-line with our estimate. We maintain our Accumulate rating on the stock.

Volumes jump 38.0% yoy: NMDC's net sales increased by 37.9% yoy to Rs. 2,823cr (in-line with our estimate of Rs. 2,821cr) mainly due to higher volumes and realizations. The volumes grew by 38.0% yoy to 7.3mn tonne while the realizations decreased by 0.2% yoy to Rs. 3,811/tonne.

EBITDA/tonne flat yoy: The EBITDA increased by 36.8% yoy to Rs. 1,903cr while the EBITDA margin contracted 54bp yoy to 67.4%. EBITDA/tonne however was flat yoy at Rs. 2,592. The company's depreciation expenses grew by 6.8% yoy to Rs. 36cr and there was an exceptional item of Rs. 76cr. Other income declined by 8.7% yoy to Rs. 508cr and tax rate was also higher at 34.0% in 3QFY2014 compared to 32.4% in 3QFY2013. Consequently, the adjusted net profit increased at a lower rate of 27.1% yoy to Rs. 1,643cr (in-line with our estimate of Rs. 1,636cr).

Outlook and valuation: NMDC had taken frequent price cuts during 1HCY2013 due to sluggish steel demand amidst declining sponge iron prices. Nevertheless, with increase in sponge iron and steel prices over the past 3 months, NMDC has opportunistically raised prices during September 2013 and February 2014. Moreover, with government urging PSUs to pay higher dividends, NMDC has raised its dividend payout recently given its cash-rich balance sheet, low capex needs and strong operating cash flow - these bode well for the stock. Valuing the stock at 5.0x FY2015E EV/EBITDA, we derive a fair price of Rs. 158 and recommend Accumulate on the stock.

Source : Equity Bulls

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