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Performs well…

NMDC reported an operationally healthy set of numbers for Q4FY21 wherein topline and EBITDA came in higher than our estimate. For Q4FY21, NMDC reported sales volume of 11.1 MT, up 29% YoY, 19% QoQ (our estimate 11.1 MT). For Q4FY21, NMDC reported topline of | 6848 crore (up 115% YoY, 57% QoQ), higher than our estimate of | 6133 crore. Better-than-expected realisation aided Q4FY21. NMDC’s blended realisation for Q4FY21 was at | 6138/tonne, up 67% YoY, 32% QoQ, higher than our estimate of | 5500/tonne. EBITDA for the quarter was at | 4242 crore (up 184% YoY, 53% QoQ), higher than our estimate of | 3996 crore. For Q4FY21, EBITDA/tonne was at | 3847/tonne, up 110% YoY, 27% QoQ, higher than our estimate of | 3600/tonne. Ensuing PAT for Q4FY21 was at | 2836 crore, up 35% QoQ (our estimate of | 3031 crore).

Model sales volume of 40 MT for FY22E, 42 MT for FY23E…

For Q4FY21, NMDC reported production volume of 12.3 MT (up 30% YoY, 28% QoQ) while sales volume for Q4FY21 was at 11.1 MT (up 29% YoY, 19% QoQ). For FY21, NMDC reported production volume of 34.2 MT (up 8% YoY) while sales volume for FY21 was at 33.3 MT (up 6% YoY). After a muted Q1FY21 due to Covid-19 related concerns, NMDC posted a smart volume recovery in the last three quarters. Going forward, the company is aiming to clock production volume of 44 MT for FY22E wherein Donimalai mine is expected to contribute ~7 MT. FY22 sales volume guidance is 42 MT. Going forward, we model sales volume of 40 MT for FY22E (upward revised from 38 MT earlier) and 42 MT for FY23E (upward revised from 40 MT earlier). In the first couple of months of FY22 (April-May 2021), NMDC reported production volume of 5.9 MT while sales volume was at 6.4 MT.

De-merger of steel plant expected in Q3FY22…

NMDC is targeting commissioning of the Nagarnar steel plant during Q3FY22. The demerger of the steel plant is also targeted at Q3FY22. The progress on both would be a key monitorable, going forward. The demerger of the steel plant would enhance the return ratios of the core mining entity, auguring well for the company. Of the total project cost of | 21300 crore for the steel plant, till date NMDC has incurred a capex of | 18560 crore.

Valuation & Outlook

Over the next couple of years, uptick in volumes augurs well for NMDC. Furthermore, blended realisations of NMDC are also likely to improve further during Q1FY22 on the back of price hikes of | 2250/tonne for fines and | 2300/tonne for lumps taken by the company during April-May 2021. These price hikes would offset the additional royalty premium. On the back of volume growth coupled with healthy pricing environment, we have a positive view on NMDC. We value the stock on an SoTP basis and arrive at a target price of | 210 (earlier | 125). We upgrade the stock from HOLD to BUY recommendation.

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