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NMDC 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, NMDC’s profitability came in ahead of our estimates on account of higher than expected realizations. We maintain Buy rating on the stock.

Realization up 7.6% yoy and 9.0% qoq: NMDC’s net sales increased by 7.6% yoy to Rs.2,822cr (slightly above our estimate of Rs.2,745). Blended realization surprised us positively (+6.1% yoy and +9.0% qoq to 4,394/tonne). However, iron ore sales volumes were below our estimate (grew by only 1.4% yoy to 6.4mn tonnes). Iron ore sales volumes were affected due to breakdown of slurry pipeline in Bailadila mines and lower availability of railway rakes.

EBITDA/tonne increased by 10.5% yoy: During the quarter, EBITDA increased by 12.1% yoy to Rs.2,261cr, in-line with the increase in sales. EBITDA/tonne increased by 10.5% yoy and 9.9% qoq to Rs.3,532 due to higher average realization. Other income rose by 78.3% yoy to Rs.525cr. Hence, PAT grew by 22.4% yoy to Rs.1,859cr (above our estimate of Rs.1,757).

Outlook and valuation: Over the past five years, NMDC has traded at an average EV/EBITDA of 13.7x, compared to its current valuation of 4.4x FY2013E EV/EBITDA. Strong balance sheet, presence in sellers market (iron ore), relative immunity to iron ore price declines, low cost of production, high-grade mines, long mine life and compelling valuations make NMDC an attractive bet at these levels. Valuing the stock at 6.0x FY2013E EV/EBITDA, we derive a fair price of Rs.227 and maintain our Buy rating on the stock.