NMDC 3QFY2014 performance highlights and results update
February 12, 2014, Wednesday, 07:50 GMT | 02:50 EST | 13:20 IST | 15:50 SGT
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.