Result Update: NMDC Ltd - SELL - TP Rs.130 - Kotak

NMDC's revenue during the quarter declined 1.2% YoY to Rs24.69bn (up 2% QoQ) due to lower sales volume owing to disruption in the railway line. EBITDA during the quarter grew 17.8% YoY to Rs12.1bn (+0.6% QoQ), with an EBITDA margin of 49%. PAT came in at Rs8.87 bn, up 49%/5% YoY/QoQ. Though, we believe that iron ore price will soften in the medium to long term with the resumption of mining activities in Odisha, but the near term earnings likely to remain strong following the 19% and 22% price hike taken for lumps and fines, respectively in January'18. Q4FY18 numbers would also be supported by higher volume. We have revised our FY18E estimates upwards to Rs10.1 (earlier Rs8) and lowered our FY19E estimates to Rs10.3 (earlier Rs11.1), as we continue to maintain our cautious stance on iron ore outlook. At current valuation of 8.3x/8.2x FY19E/FY20E EV/EBITDA, the stock is fairly valued. We recommend SELL (earlier REDUCE) on NMDC, with a target price of Rs130. We have assigned value to the investment in steel plant at 50% discount.

Upside risks: The government has begun the process of strategic sale of assets in public sector undertakings. For NMDC, the Cabinet Committee on Economic Affairs (CCEA) had approved the divestment of the Nagarnar steel plant. Any development on the same would augur well for NMDC.

Shares of NMDC LTD. was last trading in BSE at Rs.130.8 as compared to the previous close of Rs. 134.9. The total number of shares traded during the day was 385423 in over 3792 trades.

The stock hit an intraday high of Rs. 136 and intraday low of 130. The net turnover during the day was Rs. 51108339.

Source : Equity Bulls

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