NMDC Ltd. share price target

31 January 2019 Adj. EBITDA increased 65% QoQ (+71% YoY) to INR22.8b in 3QFY19, 13% ahead of our estimate of INR20.2b, led by higher-than-expected realization. EBITDA is adjusted for (a) rail line doubling payment of INR528m and (b) expected credit loss of INR717m, which is non-recurring. Adj. PAT increased 63% QoQ (+76% Production increased 81% QoQ (+11% YoY) to 9.5mt, while sales grew 30% QoQ (+8% YoY) to 8.7mt, led by higher offtake from Chhattisgarh. Domestic realization increased INR550 QoQ to INR4,185/t, as against our estimate of INR3,668/t. EBITDA per ton increased 27% QoQ to INR2,618 (USD36), led by higher realization and operating leverage benefits. We raise our FY19 EPS estimate by 8% to account for the beat. Operations at the Donimalai mine remain suspended. However, we expect NMDC to eventually get its MLs renewed without sharing any revenue.

18 January 2019 Donimalai and Kumarswamy are NMDCs two mining leases (ML) in Karnataka with permitted annual production of 7mtpa each. Donimalai operations are temporarily shut pending a hearing in the High Court regarding unreasonable demand of 80% share in revenue as a condition for renewing the ML. The next court hearing is on 22 January 2019. Two MLs with total capacity of 17mtpa have already been renewed, which is half of current production. Renewal of other leases is in process. NMDC is currently shipping about 23mtpa iron ore from this complex. In the worst case if outcome in the Donimalai judgment is not favorable, NMDC will still have 17mtpa profitable capacity. Further, NMDC is confident that the Chhattisgarh government will not be as demanding as the Karnataka government. NMDC is creating a storage yard near Jagdalpur, which will debottleneck dispatches from Chhattisgarh by 4-5mt (to 28mt).

Donimalai mine. Unperturbed by the ongoing legal issue, we are rather more concerned on the i) structural risk to the domestic iron ore pricing and ii) sharp shrinkage in market share of merchant miners post auction of mines expiring by March-2020 in Odisha. Mine auctions benefit the manufacturer as it serves raw material security replacing the dependence on merchant miner at lower cost. It would act as the key enabler for capacity creation with no impact on State Govt's revenue from royalty. We downgrade NMDC to Reduce as we expect steep increase in Odisha's production (due to last year of...

Viability of NMDC's mining operations is threatened by Karnataka's pre-condition to share of 80% revenue for renewing mining leases of Donimalai, which has capacity of 4mtpa. The outcome of legal and diplomatic settlement may set a precedent for other mines. This was unexpected because public sector enterprises (PSEs) have been getting their leases renewed without sharing of any revenue - e.g. leases of Nalco's bauxite mines have been recently extended to 2029 and 2032without any share in revenue; many PSEs have been allotted coal blocks on a nomination basis

NMDC's Q2FY19 performance came in below our estimates. The company reported a sales volume of 6.7 million tonne (MT), down 19.2% YoY, 1.4% QoQ, lower than our estimate of 7 MT. The topline...

13 November 2018 2QFY19 adjusted EBITDA declined 7% QoQ (+8% YoY) to INR13.8b, marginally below our estimate of INR14.8b due to lower-than-expected realization and higher operating expenses. EBITDA is adjusted for (a) rail line doubling payment of INR480m and (b) expected credit loss of INR747m, which are non-recurring. Higher discounting at Karnataka impacted realization. EBITDA per ton declined 6% QoQ to INR2,061 (USD30) due to higher operating expenses. NMDCs volumes were impacted over the last few quarters due to higher prices and monsoon-related disruption. Domestic prices have become competitive as global iron ore prices have strengthened. We expect iron ore volume CAGR of 5-6% over the next 4-5 years from the existing mines. The steel plant is likely to produce about 1mt in FY21 and full 3mt in FY22. Margins in the steel business are likely to be 10,000/t, as it has many advantages.

In September 2018, NMDC took a price hike of | 200/tonne for iron ore lumps and | 150/tonne for iron ore fines (the price hike will be with effect from September 7, 2018). The revised prices for iron ore lumps are at | 3550/tonne (from | 3350/tonne previously) while prices of fines have been revised to | 3110/tonne (from | 2960/tonne previously). The increase in iron ore prices is in the backdrop of a healthy demand scenario and increased pellet prices. Cumulatively, since July 2018, iron ore lumps prices have increased by ~| 500/tonne while fines prices have...

NMDC has revised prices of domestic iron ore thrice YTD, adding up to Rs300 and Rs350 per tonne for iron ore fines and lump ore to Rs2,960/tonne and Rs3,350/tonne, respectively. We believe that the recent hike in the iron ore prices is backed by 4% month on month increase in international iron ore prices, rupee depreciation and the surge in pellet prices (~4 years high / +25% YoY). Though, we continue to remain cautious on the outlook of iron ore prices for the medium to long term perspective. But, expect it to remain...

Revenue fell by 37.63% to Rs. 2421.99 Cr in Q1FY19 when compared to the previous quarter. NMDC Ltd Q1FY19 results Comment

For Q1FY19, NMDC reported a healthy performance on the profitability front. NMDC reported sales volume of 6.84 million tonne (MT), lower than our estimate of 7.5 MT. Topline for the quarter came in at | 2422.0 crore, down 14.8% YoY, 37.6 QoQ vs. our estimate of | 2486 crore. The blended iron ore realisations during the quarter was at | 3504/tonne, up ~18% YoY, down 4.1% QoQ On the back of healthy iron ore realisations YoY and lower costs, the company for the quarter reported an EBITDA of | 1423.9 crore (down...