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NMDC report: NMDC cuts prices; lowers volume guidance

Contributed by Angel Broking

NMDC cuts iron ore prices: NMDC has cut prices of iron ore fines and lumps by 20% and 3%, respectively for 4QFY2012 on the back of decline in global iron prices (-18% over the past five months), the recent rupee appreciation (7.5% since January 1, 2012) and increase in export duty on iron ore (from 20% to 30% effective January 1, 2012). The price cut by NMDC is higher than our expectations given the shortage of iron ore in the domestic markets (especially iron ore lumps) on the back of mining ban in Karnataka region and government’s stricter stance on illegal mining in other regions such as Goa and Orissa.

Volume guidance also lowered: NMDC has also lowered its sales volume guidance for FY2012 and FY2013. It now expects sales volumes of 27mn tonnes and 30mn tonnes (earlier 30 mn tonnes and 33mn tonnes) for FY2012 and FY2013, respectively. Although the company has ~5mn tonnes of iron ore  inventory at its mine pit-heads, however, it faces logistical constraints to increase offtake due to break-down in slurry pipeline, lower availability of railway rakes and stricter regulations in transportation of iron ore in Karnataka. Capex update: NMDC has planned to incur capex of Rs.1,350cr and Rs.2,500cr during FY2012 and FY2013, respectively. Majority of this capex will be spent towards setting up the Chhattisgarh steel plant.

Estimates lowered to factor in price cuts and volume guidance: We lower our 4QFY2012 and FY2013 realization and sales volume estimates to factor in the latest guidance by NMDC