NMDC Ltd. share price target

NMDC underperformed steel stocks by a wide margin over last three months due to uncertainty regarding payment of premium for its Donimalai mine's lease renewal. After two years impasse, Govt of Karnataka renewed Donimalai mines (with capacity of 7mtpa) at a premium of 22.5% of sales price. We expect that similar premium would be paid for its iron ore operations in Chhattisgarh, which constitutes 78% of its overall volumes. Severe shortage in domestic market (due to supply disruptions in Odisha), strong profitability of steel producers and firm outlook on global prices shall...

Process underway for divestment of steel plant NMDC reported Q2FY21 EBITDA missed our estimates by 5% while it is 4% above consensus estimates. Miss was largely due to lower than expected realisations, partially offset by lower costs. Unlike past, NMDC has been forthcoming this time in undertaking price hikes in tandem with strong global prices and shortage in domestic market....

Retain Buy on valuations despite risk of higher levies NMDC's 2QFY21 EBITDA declined 7% YoY to INR10.3b as lower iron ore prices offset the benefit of 14% YoY volume growth. Outlook for 2HFY21, however, is strong as currently prices are ~30% higher (or ~INR800/t) than 2QFY21 average, which should drive significantly higher profitability. The government's proposal to levy an additional premium on NMDC's renewed mining leases, however, has emerged as a key overhang. If a premium of 22.5% of revenue is levied on all mines of NMDC, it poses a...

estimates of Rs1,743 largely due to one-time covid-19 related donation equivalent to Rs227/t. Impacted by weak revenue and one-time CSR expenses, EBITDA fell 49% QoQ/60% YoY at Rs7.5bn (PLe:Rs7.9bn). PAT fell 55% QoQ/55% YoY at Rs5.3bn (PLe:Rs6.2bn) due to 46% QoQ/42% YoY fall in other...

4 August 2020 volumes increased 7% YoY to 2.57mt on improving demand from steel plants as domestic demand improves. This, coupled with higher international iron ore prices, has enabled NMDC to raise prices this month by INR200/t (~9%) to INR2,360/2,650 per ton for fines/lumps. We believe NMDCs iron ore prices should sustain in 2HFY21 due to rising steel prices (up ~INR2,000/t MoM), higher pellet prices (up 20% MoM to INR7,200/t), and reduced iron ore supply from Odisha mines. Volume growth of 7% YoY reported by NMDC (to 2.57mt) in July20 has surprised and is three months ahead of our expectation of positive volume print in 2HFY21. While iron ore production from several auctioned mines in Odisha has commenced in the current quarter, we believe production from these mines would be lower by >30% YoY in FY21, supporting NMDCs volumes in the near term.

Model sales volume of 28 MT for FY21E, 35 MT for FY22E For FY20, NMDC's production volume was at 31.48 MT, down 3% YoY (32.36 MT for FY19) while sales volume was also at 31.51 MT, down 3% YoY (32.36 MT for FY19). Going forward, we model sales volume of 28 MT for FY21E (downward revised from 35 MT earlier). We also introduce FY22E sales volume estimate at 35 MT. April-May cumulative production down 31%, sales down 35% NMDC started FY21 on a subdued note. For April-May 2020, production...

Global iron ore prices shot up by ~18% in last couple of months due to strong Change in Estimates | Target | Reco revival in Chinese steel production, low iron ore inventory and supply disruption in Brazil on account of Covid-19 virus spread. Based on our...

9 May 2020 According to industry sources, NMDC has sharply reduced prices for iron ore fines and lumps by INR400/t (~17%) starting 9 May20. volumes declined 49% YoY to 1.38mt amid weak demand, which has led to the company cutting prices for both fines and lumps by INR400/t (~17%). Thus, prices of NMDCs iron ore fines/lumps now stand at INR1,960/INR2,250 per ton. We believe iron ore prices would remain subdued in 1HFY21 due to weak demand as most steel plants are operating at lower utilizations. As a result, we have factored in an increase of INR350/t (~15%) for 2HFY21, implying ~10% higher prices in FY21E over current prices. Most secondary steel producers resumed operations in May20 and large steel players have also indicated higher utilizations for the month. As a result, we expect lower volume decline in May-Jun20 and factor in decline of ~35% YoY for 1QFY21.

Maintains volume estimate for FY20E, revised for FY21E For 9MFY20, production volume was at 22.0 MT, up 1% YoY (21.8 MT for 9MFY19) while sales volume were at 22.9 MT, up 3% YoY (22.2 MT for 9MFY19). Going forward, we maintain our volume estimates for FY20E while we upward revise our volume estimate for FY21E. We model sales volume of 32 MT for FY20E, 35 MT for FY21E (upward revise from 32 MT earlier)....

While we expect the recent price hikes to aid profitability, we remain conservative on prices heading into FY21. EBITDA was up 34% QoQ to INR15.7b on the back of higher production at 8.6mt (+71% QoQ) and higher sales volume at 8.4mt (+45% QoQ). Reported domestic realization declined INR313 QoQ to INR2,578/t on the back of price declines during the quarter. Subsequently, we expect domestic realizations to increase 25% Sustainability of these price hikes though would be dependent on sustained steel demand and the materialization of a disruption on the iron ore side post the lease expiry (which we have not built in). However, given the recent price hikes and shift to the lower tax rate, we raise our EBITDA est. We believe the companys steel plant would be valuable given the low-cost iron ore and economy of The Ministry of Mines has favorably amended the Mineral rules with regards to renewal of leases.

For Q2FY20, production volumes were at 5.0 MT, down 5% YoY, while sales volumes were down 13% YoY to 5.8 MT. As the Donimalai mines were shut, the production volume was adversely impacted compared to Q2FY19. Going forward, we model sales volume of 32 MT for both FY20E and FY21E. Restart of Donimalai mines awaits Karnataka response In September 2019, the Ministry of Mines amended the 'Mineral (Mining by Government Company) Rules, 2015 with regard to renewal of mining leases allocated to government companies. Earlier, the rule 3 (2) stated that if an...

NMDC reported Q2FY20 EBITDA in line with our estimates; missed consensus estimates (CE) by 6%. On PAT level, it missed our estimates by 13% (CE:21%) due to status quo on tax rates as we believe that company is waiting for tax treatment on capitalization of its steel plant. Street is excited on expectation of fast clearance of NMDC's Donimalai iron ore mines with the...

EBITDA was down 39% QoQ to INR11.7b (11% below est. INR13.1b) on the back of lower export volumes at 0.52mt (v/s est. The QoQ drop in EBITDA was led by lower overall volumes. PBT declined 40% QoQ to INR11.9b while Adj. PAT declined 40% QoQ to INR8.2b (14% miss). Reported domestic realization declined INR25 QoQ to INR2,891/t on the back of price decline (INR200/t in Sep19). PAT was up 13% YoY to INR21.7b. Cash flow from operations post tax was down 53% YoY to INR5.2b on the back of WC deterioration. Global iron ore prices have retreated in recent months and we expect this to lead to lower export price realization. On the domestic front, we expect prices to decline in 4QFY20 due to (a) an oversupplied market, (b) higher availability prior to mine lease expiry, and (c) some tapering off in global Most packages of the steel plant are complete.

Lower base effect aids July 2019 production/sales volume... NMDC reported production and sales volume numbers for July 2019. While prima facie, the growth numbers looked decent, it was mainly aided the by lower base effect (especially in Chhattisgarh). For July 2019, the production volume was at 2.0 MT while sales volume was at 2.4 MT....

Recently, the Karnataka High Court ruled in favour of NMDC with regard to royalty issue in case of Donimalai mine. Earlier, Karnataka had levied 80% royalty on the Donimalai mine during the time of lease renewal. In this regard, NMDC had filed a writ petition in the high court against the royalty of 80% levied by the Karnataka government on average sales value of iron ore from the Donimalai mine. The writ petition has been allowed and the earlier condition to impose premium equivalent to 80% of average sale price of iron ore has been set aside. This favourable judgement augurs well for...

NMDC reported Q1FY20 earnings in line with our estimates. The sharp rise in Change in Estimates | Target | Reco iron prices aftermath collapse of Vale's Brumadinho dam in Brazil helped NMDC to post strong earnings growth in last couple of quarters. However, we...

1QFY20 adj. EBITDA of INR19.3b (-4% QoQ) was in line with our estimate of INR18.9b. The sequential decline in EBITDA was due to lower volumes, partly offset by higher realizations. Adj. PAT was down 6% QoQ at INR12.8b (in-line). Production was down 20% QoQ (+21% YoY) to 8.4mt, while sales declined 15% QoQ (+28% YoY) to 8.7mt (in-line). Domestic reported realization was up INR89 QoQ to INR2,916/t on the back of price hikes (INR200-250/t in May). In case of the Donimalai mine, a new lease agreement has to be signed with...

Favourable high court ruling also augurs well Karnataka High Court has ruled in favour of NMDC with regard to royalty issue in case of Donimalai mine. Earlier, Karnataka had levied 80% royalty on the Donimalai mine during the time of lease renewal. In this regard, NMDC had filed a writ petition in the high court against the royalty of 80% levied by the Karnataka government on average sales value of iron ore from the Donimalai mine. The writ petition is allowed and the earlier condition to impose premium equivalent to 80% of average sale price of iron ore has...

Model sales volume of 31, 32 MT for FY20, 21, respectively For FY19, NMDC reported production volume of 32.36 MT, down 9.1% YoY, while it reported sales volume of 32.36 MT, down 10.8% YoY. The volume during FY19 was impacted on account of suspension of operations at NMDC's Donimalai iron ore mine. NMDC Donimalai mine has remained shut since November 2018, on account of royalty dispute with Karnataka government. The high court verdict is awaited for the same. The outcome of this verdict remain a key monitorable. Without Donimalai mine, NMDC...

Operational decline as expected on lower realizations Donimalai mine lease resolution to drive re-rating; Maintain Buy 4QFY19 adj. EBITDA of INR20b (-12% QoQ) came in line with our estimate of INR19.6b. EBITDA is adjusted for (a) expected credit loss of INR742m, which is non-recurring and (b) INR1.65b of provision write-backs. The QoQ drop in...