Result Update: NMDC Ltd - BUY - TP Rs.125 - Kotak

NMDC Q1FY19 EBITDA was higher than estimates, led by sharp fall in other expenses. Volume from Karnataka declined during the quarter, as domestic steel maker shifted to imported ore, citing higher prices in the domestic market.

Key Highlights

- Iron ore shipments declined 26% YoY and 35% QoQ at 6.8MT due to decline in sales volume in Karnataka, by 74% YoY to 0.9MT. Exports volume during the quarter was nil. Realisation during the quarter stood at Rs3,524/tonne.

- The other expenses during the quarter declined sharply due to nil export sales volume that abated selling expenses as freight, lower provisions towards a mine-closure expenses and lower CSR contribution in Karnataka.

- We continue to maintain our cautious outlook for iron ore and also on NMDC due to resumptions of mining operations in Odisha, subdued global prices and upcoming auctioned of merchant mines.

Valuation & outlook

- We have revised our estimates higher for FY19E to Rs12.2 (earlier Rs10.2) and Rs 11.3 (earlier Rs10.4), factoring strong realisation. We continue to maintain our cautious outlook on iron ore prices due to increasing seaborne supply from the four biggest iron ore miners in 2018E and 2019E to the tune of 40MT and 20MT, respectively, which in our view will be difficult to absorb. Besides this, increasing supply in the domestic market and higher dependency of merchant miners on largest steel makers will weigh on the domestic iron ore prices. At CMP, the stock trades at 5.3x/5.7x FY19E/FY20E EBITDA, factors in all the potential negative. Factoring 50% of the investment in steel plant and valuing core business at 5.5x, we arrive at a revised target price of Rs125 (earlier Rs130). Recommend BUY.

Shares of NMDC LTD. was last trading in BSE at Rs.105.85 as compared to the previous close of Rs. 106.65. The total number of shares traded during the day was 303409 in over 2166 trades.

The stock hit an intraday high of Rs. 109.2 and intraday low of 104.75. The net turnover during the day was Rs. 32348237.

Source : Equity Bulls

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