NMDC, 15th February 2013

7/29/2019 NMDC, 15th February 2013

1/13

Please refer to important disclosures at the end of this report 1

EBITDA 1,390 2,261 (38.5) 1,935 (28.1)

% margin 67.9 80.1 (1,218)bp 74.1 (615)bp

Source: Company, Angel Research

NMDC reported weaker-than-expected 3QFY2013 results on the back of

lower-than-expected sales volumes as well as realizations.

NMDCs net sales fell by 27.5% yoy

to`2,047cr (below our estimates of `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 `3,820/tonne.

EBITDA declined by 38.5% yoy

to `1,390cr. EBITDA/tonne decreased by 26.0% yoy to `2,614 due to fall in

average realization. Net profit decreased by 30.5% yoy to `1,292cr (below

our estimate of `1,518cr).

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.

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.

% chg 82.2 (1.0) (14.1) 19.2

% chg 88.3 11.8 (12.8) 16.5

OPM (%) 76.1 79.3 75.2 76.6

P/E (x) 9.0 8.0 9.2 7.9

P/BV (x) 3.0 2.4 2.0 1.7

RoE (%) 38.8 33.3 23.6 23.0

RoCE (%) 50.6 40.1 26.6 27.0

EV/Sales (x) 3.6 3.4 3.8 3.0

EV/EBITDA (x) 4.7 4.2 5.1 4.0


CMP `147

Target Price `181

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr)

Bloomberg Code

Shareholding Pattern (%)

Promoters 80.0

MF / Banks / Indian Fls 11.9

FII / NRIs / OCBs 4.4Indian Public / Others 3.7

Abs. (%) 3m 1yr 3yr

Sensex 5.3 10.3 21.4

NMDC (17.3) (21.7) 10.3

Face Value (`)

BSE Sensex

Nifty

Reuters Code

58,182

206/142

284,653

1

Mining

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

0.9

19,608

5,933

5,760

NMDC.BO

NMDC@IN

Tel: 022- 39357600 Ext: 6821

[email protected]

Tel: 022- 39357600 Ext: 6841

[email protected]

Performance Highlights

3QFY2013 Result Update | Mining

February 13, 2013


2/13

NMDC | 3QFY2013 Result Update

February 13, 2013 2

Exhibit 1:3QFY2013 performance (Standalone)

Raw Material (41) (33) 22.6 (42) (3.6) 88 35 151.4% of net sales (2.0) (1.2) (1.6) 1.2 0.4

Consumption of stores & spares 64 60 7.2 40 60.8 158 152 3.9

% of net sales 3.1 2.1 1.5 2.1 1.8

Staff Cost 139 139 0.2 144 (3.3) 418 403 3.7

% of net sales 6.8 4.9 5.5 5.6 4.6

Other Expenditure 494 396 24.8 536 (7.8) 1,384 1,127 22.8

% of net sales 24.1 14.0 20.5 18.5 13.0

Total Expenditure 656 561 17.0 677 (3.1) 2,048 1,717 19.3

% of net sales 32.1 19.9 25.9 27.3 19.8

OPM% 67.9 80.1 74.1 72.7 80.2

Other Operating Income - - - - -

EBITDA margins (%) 67.9 80.1 74.1 75.0 80.2

Interest - - - - -

Depreciation 34 34 (1.7) 33 2.1 100 101 (1.0)

Other Income 556 525 5.9 583 (4.6) 1,691 1,470 15.0

Exceptional Items - - - -

% of net sales 93.5 97.5 95.1 96.3 96.0

Tax 621 893 (30.5) 806 (23.0) 2,342 2,697 (13.2)

% of PBT 32.5 32.4 32.4 32.4 32.4


Exhibit 2:3QFY2013 Actual vs Angel estimatesNet sales 2,047 2,162 (5.3)

EBITDA 1,390 1,704 (18.4)

EBITDA margin (%) 67.9 78.8 (1,087)bp

PAT 1,292 1,518 (14.9)



3/13


February 13, 2013 3

Result highlights

Realization slumps 13.1% yoy

NMDCs net sales fell by 27.5% yoy to`2,047cr (below our estimatesof `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 `3,820/tonne.

Iron ore sales volumes were low due to lower offtake from the e-auctions by the

company and lower production volumes.

Exhibit 3:Sales volumes down 16.9% yoy


Exhibit 4:Realization decreased by 13.1% yoy


Exhibit 5:Net sales decreased by 27.5% yoy


EBITDA/tonne decreased by 26.0% yoy

EBITDA declined by 38.5% yoy to `1,390cr and EBITDA margin contracted

1,218bp yoy to 67.9%. EBITDA/tonne decreased by 26.0% yoy to `2,614 due to

fall in average realization. Other expenditure grew by 26.8% yoy to `1,131cr

during the quarter.

6.3

8.5

6.97.6

6.4 6.56.8

5.95.3

(30)

(20)

(10)

0

10

20

30

40

50

60

0

1

2

3

4

5

6

7

8

9

3QFY11 1QFY12 3QFY12 1QFY13 3QFY13

(%)

(mntonn

es)

Sales volume % yoy (RHS)

4,141

4,434

4,015 4,030

4,394

3,982

4,136

4,442

3,820

(20)

(10)

0

10

20

30

40

50

60

70

3,500

3,600

3,700

3,800

3,900

4,000

4,100

4,200

4,300

4,400

4,500


(%)

(`/tonne)

Average realization % yoy (RHS)

2,783

3,0622,822

2,5952,840

2,612

2,047

(40)

(30)

(20)

(10)

0

10

20

30

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13

(%)

(`cr)

Net sales (LHS) yoy change (RHS)


4/13


February 13, 2013 4

Exhibit 6:EBITDA/tonne decreased by 26.0% yoy


Exhibit 7:EBITDA margin stood at 67.9%


Net profit declined by 30.5% yoy

Other income grew by 5.9% yoy to `556cr, mainly due to higher cash

balance. Consequently, the net profit decreased by 30.5% yoy to `1,292cr

(below our estimate of `1,518cr).

Exhibit 8:Net margin stood at 63.1%


3,196 3,230 3,268 3,214

3,532

3,062

3,385 3,307

2,614

(40)

(20)

0

20

40

60

80

100

0

500

1,000

1,500

2,000

2,5003,000

3,500

4,000


(%)

(`/tonne)

EBITDA/tonne % yoy (RHS)

86.8

72.7

81.0 79.5

80.1

76.1

81.0

74.1

67.9

0

10

20

30

40

50

60

70

80

90

100

0

500

1,000

1,500

2,000

2,500

3,000


(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

57.9

55.7 64.7 64.1 65.9 63.367.1 64.3

63.1

0

10

20

30

40

50

60

70

80

0

500

1,000

1,500

2,000

2,500


(%)

(`cr)

Net profit (LHS) Net profit margin (RHS)


5/13


February 13, 2013 5

Investment rationale

NMDC aims to ramp up its production capacity to 48mn tonne by FY2015 (currentcapacity 32mn tonne) through increased exploration of its existing mines and

development of new mines (Deposit 11B and Deposit 13 in Bailadila and

Kumaraswany, respectively, in Karnataka). However, given its past track record, we

forecast iron ore production capacity to increase to 40mn tonne by FY2015

(compared to its target of 48mn tonne). In the near term, although we expect sales

volumes to decline in FY2013, we expect them to grow by 14.3% yoy during

FY2014.

Exhibit 9:Iron ore capacity expansion details


NMDC is one of the lowest cost producers of iron ore on account of its highly

mechanized mines, high-grade iron ore mines and logistical efficiencies. Further,

NMDC (unlike other PSUs such as SAIL and Coal India) does not face issues of

high employee costs as a percentage of net sales. Its staff costs/net sales ratio is

the lowest compared to other PSUs.

Exhibit 10:NMDCs opex & EBITDA per tonne trend


Exhibit 11:Employee costs as a percentage of sales


32

48

7

72

0

10

20

30

40

50

60

Current Bai ladi la 11/B Kurumaswamy Dep. 10, 11/A Total

(mntonnes)

1114 16

36

6663

0

10

20

30

40

50

60

70

FY2010 FY2011 FY2012

(US$/tonne)

Opex/tonne EBITDA/tonne

6.74.3 4.7

13.6

18.0 17.4

37.3 37.740.5

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

FY2010 FY2011 FY2012

(%)

NMDC SAIL Coal India


6/13


February 13, 2013 6

Seeking to diversify into steel making

The Management intends to diversify its operations by moving downstream

through establishing steel plants and pellet plants. Accordingly, the company aims

to build an integrated 3mn tonne steel plant in Jagdalpur, Chhattisgarh. Land

acquisition for the same is nearly complete, which gives comfort as land

acquisition has been a major bottleneck to greenfield projects in recent times.

However, we believe the steel project is not likely to be value accretive to NMDC in

the initial period of operations.

Exhibit 12:Chhattisgarh steel project statusCapacity 3mn tonne per year

Capex `15,525cr

Land Total land required: 1,934 acres. Total land acquired: 1,932 acres.

Balance land is under allotment process.Date ofcompletion

42 months from Zero date i.e., receipt of all statutoryclearance/approvals and placement of orders.Targeted period FY2015


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 these levels.

Exhibit 13:Key assumptionsSales volume (mn tonne) 25 28

Average realization (US$/tonne) 3,914 4,120

Source: Angel Research

Exhibit 14:EPS Angel forecast vs consensusFY2013E 16.0 17.7 (9.7)

FY2014E 18.6 19.2 (3.0)

Source: Bloomberg, Angel Research


7/13


February 13, 2013 7

Exhibit 15:EV/EBITDA band


Exhibit 16:P/E band


Exhibit 17:P/BV band


0

50,000

100,000

150,000

200,000

250,000

Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13

(`

cr)

5x 8x 11x 17x 14x

0

100

200

300

400

500

600

Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13

(`)

9x 14x 19x 24x

0

100

200

300

400

500

600

700

800

Apr-06 Jan-07 Oct-07 Jul -08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13

(`)

2.0x 4.0x 6.0x 8.0x


8/13


February 13, 2013 8

Exhibit 18: Recommendation summary

Sesa Goa 166 183 Accum. 14,418 10 5.6 5.2 0.9 0.8 24.6 14.2 16.3 15.4 3.5 5.5

Coal India 348 369 Accum. 219,683 6 13.5 12.7 4.2 3.4 8.7 7.5 35.0 29.3 19.9 18.8

MOIL 252 - Neutral 4,239 - 9.8 9.7 1.5 1.4 4.4 4.3 16.7 15.1 15.1 13.4


Company background

Incorporated in November 1958, government-owned NMDC is Indias largest iron

ore producer with a capacity of 36mn tonne. The company operates high-grade

iron ore mines at Kirandul and Bacheli in Chhattisgarh and Donimalai in

Karnataka. The average mine life of NMDC is 38 years currently.


9/13


February 13, 2013 9

Profit & loss statement (Standalone)

Other operating income

% chg 32.4 (17.5) 82.2 (1.0) (14.1) 19.2

Total Expenditure 1,726 1,817 2,722 2,336 2,404 2,703

Net Raw Materials 86 211 123 234 252 317

Personnel 421 420 492 529 571 594

Other 1,219 1,186 2,107 1,573 1,580 1,792

% chg 34.6 (24.2) 95.5 3.2 (18.5) 21.5

(% of Net Sales) 77.2 70.9 76.1 79.3 75.2 76.6

Depreciation & Amort. 74 73 125 130 106 127

% chg 34.8 (24.6) 95.9 3.2 (18.5) 21.5

(% of Net Sales) 76.2 69.7 75.0 78.1 74.1 75.5

Interest & other Charges - - - - - -

Other Income 884 862 1,206 2,016 2,293 2,316

% chg 34.4 (21.6) 86.7 11.1 (12.5) 16.5

Extraordinary Inc/(Exp.) - - - (513.0) - -

Tax 2,276 1,760 3,228 3,494 3,121 3,637

(% of PBT) 34.2 33.8 33.2 32.5 33.0 33.0

% chg 34.5 (21.1) 88.3 11.8 (12.8) 16.5

(% of Net Sales) 57.8 55.3 57.2 64.5 65.5 64.0

% chg 34.5 (21.1) 88.3 11.8 (12.8) 16.5


10/13


February 13, 2013 10

Balance sheet (Standalone)

Equity Share Capital 396 396 396 396 396 396Reserves& Surplus 11,240 13,876 18,818 24,010 28,863 34,520

Total Loans - - - - - -

Deferred Tax Liability 58 85 103 100 100 100

Other Long term Liabilties - - 22 23 23 23

Long Term Provisions - - 15 13 13 13

Gross Block 1,669 1,771 2,273 2,388 3,388 3,888

Less: Acc. Depreciation 923 984 (1,174) (1,199) (1,306) (1,433)

Capital Work-in-Progress 248 561 568 1,494 4,894 7,894

Goodwill - - - - - -

248 248 248

Long Term Loans and Adv. - - 199 512 512 512

Other non- current assets - - 11 7 7 7

Current Assets 11,771 14,264 19,086 23,199

Cash 9,740 12,855 17,228 20,265 20,796 22,993

Loans & Advances 403 683 557 1,048 1,048 1,048

Other 1,628 726 1,300 1,886 1,752 1,890

Current liabilities 1,165 1,348 1,744 2,105

Mis. Exp. not written off 22 17 - - - -


11/13



Cash flow statement (Standalone)

Profit before tax 6,648 5,207 9,726 10,760 9,457 11,022

Depreciation 74 73 122 184 106 127Change in Working Capital (785) 926 (525) (889) (29) (86)

Others (866) (832) (1,144) (1,962) - -

Direct taxes paid (2,292) (1,770) (3,318) (3,502) (3,121) (3,637)

Inc./ (Dec.) in Fixed Assets (389) (422) (456) (1,211) (4,400) (3,500)

Other income 880 828 (3,961) 472 - -

Issue of Equity - - - - - -

Inc./(Dec.) in loans - - - - - -

Dividend Paid (Incl. Tax) (728) (895) (994) (1,911) (1,483) (1,728)

Others - - (0) (0.1) - -

Inc./(Dec.) in Cash 2,541 3,115 (550) 1,945 531 2,197


12/13



Key ratios

P/E (on FDEPS) 13.3 16.9 9.0 8.0 9.2 7.9P/CEPS 13.1 16.5 8.8 7.9 9.0 7.8

P/BV 5.0 4.1 3.0 2.4 2.0 1.7

Dividend yield (%) 1.5 1.2 1.5 2.1 2.2 2.5

EV/Sales 6.4 7.3 3.6 3.4 3.8 3.0

EV/EBITDA 8.3 10.3 4.7 4.2 5.1 4.0

EV / Total Assets 4.1 3.2 2.1 1.5 1.3 1.0

EPS (Basic) 11.0 8.7 16.4 18.3 16.0 18.6

EPS (fully diluted) 11.0 8.7 16.4 18.3 16.0 18.6

Cash EPS 11.2 8.9 16.7 18.7 16.2 18.9

DPS 2.2 1.7 2.2 3.2 3.2 3.7

Book Value 29.4 36.0 48.5 61.6 73.8 88.1

EBIT margin 76.2 69.7 75.0 78.1 74.1 75.5

Tax retention ratio (%) 65.8 66.2 66.8 67.7 67.0 67.0

Asset turnover (x) 5.2 3.8 6.7 3.7 1.6 1.1

ROIC (Post-tax) 261.7 174.0 333.3 197.7 77.5 57.9

Cost of Debt (Post Tax)

ROCE (Pre-tax) 57.7 33.4 50.6 40.1 26.6 27.0

Angel ROIC (Pre-tax) 454.4 347.9 744.9 444.2 239.0 236.0

ROE 43.9 26.6 38.8 33.3 23.6 23.0

Asset Turnover (Gross Block) 4.9 3.6 5.6 4.8 3.3 3.2

Inventory / Sales (days) 64 60 56 72 65 60

Receivables (days) 50 25 16 24 24 24

Payables (days) 81 105 54 63 63 63

WC cycle (ex-cash) (days) 33 34 11 21 27 22

Net debt to equity (0.8) (0.9) (0.9) (0.8) (0.7) (0.7)

Net debt to EBITDA (1.7) (2.9) (2.0) (2.3) (2.9) (2.6)Interest Coverage (EBIT / Int.) - - - - - -


13/13


F b 13 2013 13

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

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Disclosure of Interest Statement NMDC

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below`

1 lakh for Angel, its Group companies and Directors

Documents

NMDC, 15th February 2013