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NMDC 3QFY2013 performance highlights and results update

Contributed by Angel Broking

NMDC reported weaker-than-expected 3QFY2013 results on the back of lower-than-expected sales volumes as well as realizations. We maintain Buy on the stock due to its inexpensive valuations.

Weak operational performance: NMDC’s net sales fell by 27.5% yoy to Rs.2,047cr (below our estimates of Rs.2,162cr), mainly due to lower volumes, which declined 16.9% yoy to 5.32mn tonne. Iron ore realizations also declined 13.1% yoy to Rs.3,820/tonne.

EBITDA/tonne slumps on lower realizations: EBITDA declined by 38.5% yoy to Rs.1,390cr. EBITDA/tonne decreased by 26.0% yoy to Rs.2,614 due to fall in average realization. Net profit decreased by 30.5% yoy to Rs.1,292cr (below our estimate of Rs.1,518cr).

Other updates: The company has an inventory of 5mn tonne currently; however it continues to face issues for offtake of iron ore. There is still no clarity on commencement of transportation on slurry pipeline.

Outlook and valuation: Over the past five years, NMDC has traded at an average EV/EBITDA of 13.4x, compared to its current valuation of 4.0x FY2014E EV/EBITDA. Strong balance sheet, presence in sellers market (iron ore), low cost of production, high-grade mines and long mine life make NMDC an attractive bet at the current levels. Valuing the stock at 5.5x FY2014E EV/EBITDA, we derive a fair price of Rs.181 and recommend Buy on the stock.