Buy NMDC Ltd For Target Rs. 135 - ICICI Direct
Iron ore realisations surprise positively
About the stock: Incorporated in 1958, NMDC is India's largest merchant iron ore miner.
? During FY22, NMDC’s iron ore production volume was at ~42 million tonne (MT) while sales volume for FY22 was at ~41 MT
? NMDC is one of the lowest cost iron ore producers in the world
Q1FY23 Results:
For the quarter, NMDC reported a better-than-expected performance, primarily on the back of higher-than-expected blended iron ore realisations. Iron ore realisations for Q1FY23 were at | 6050/tonne, up 13% QoQ, higher than our expectation of | 5350/tonne.
? For Q1FY23, NMDC reported iron ore sales volume of 7.8 MT, down 17% YoY and 36% QoQ, broadly in line with our estimate of 7.7 MT. For Q1FY23, NMDC reported topline of | 4767 crore, down 27% YoY and 29% QoQ, higher than our estimate of | 4022 crore
? EBITDA for the quarter was at | 1900 crore, down 55% YoY, 29% QoQ, higher than our estimate of | 1340 crore. EBITDA/tonne for the quarter was at | 2436/tonne, up 11% QoQ but down 45% YoY, higher than our estimate of | 1750/tonne. EBITDA margin for the quarter was at 39.9% compared to 64.1% in Q1FY22 and 40.1% in Q4FY21, higher than our estimate of 33.3%
? Ensuing PAT for the quarter was at | 1470 crore, down 19% QoQ and 54% YoY, higher than our estimate of | 1005 crore
What should investors do; NMDC’s share price has given a return of ~27% over the last two years (from ~| 88 in August 2020 to ~| 112 levels in August 2022).
* We maintain our BUY rating on the stock
Target Price and Valuation: We value NMDC at | 135, based on SoTP valuation.
Key triggers for future price performance:
* The shareholders and creditors of NMDC have approved the demerger of the company’s under-construction Nagarnar Steel Plant (NSP). Receipt of other key approvals/timelines for process remains a key monitorable
* Steel plant demerger and good dividend yield are the two key triggers for the near to medium term for the company
Alternate Stock Idea: In our metal sector coverage, we also like Jindal Stainless
* Jindal Stainless (JSL) has a 1.1 million tonnes per annum (MTPA) integrated facility with backward integration
* BUY with a target price of | 135
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