Emkay Global Financial Services is bullish on NMDC
and has recommended buy rating on the stock with a target of Rs 196 in its December 24, 2012 research report.
“NMDC is India’s largest iron ore producer (current capacity of 32 mtpa) and the primary source of iron ore for most of the major domestic non- integrated steel producers. The company plans to expand its iron ore production capacity to 48 mtpa by FY15, which will find immediate buyers, as steel capacities are likely to go up to ~110 mtpa from 84 mtpa, generating an incremental iron ore demand of ~47 mt within 2-3 years.”
“The average Fe content in NMDC’s existing mines is 66%, which can be considered as the best quality ore as compared to ~58% for Sesa Goa and 56% - 62% for BHP Billiton, Rio Tinto and Vale. Also, at ~Rs 450/ tonne, NMDC’s cost of production falls in the lower quartile of cost curve. High grade ore and low CoP combined with the recent shift in pricing policy from export parity to domestic market driven is likely to help NMDC enjoy pricing power. Recently, issues related to illegal mining have taken the centre stage starting with Karnataka via Goa and now in Orissa. However, NMDC is likely to be unaffected by this issue, given its PSU status and compliance with mining laws. Instead, we expect NMDC to benefit from this, given the fall in supply and as demand for iron ore remains strong globally. Among the concerns, the introduction of mining tax (MMDR Bill) proposing 100% royalty sharing will be a deterrent for NMDC being a pure mining company.”
“At the CMP of Rs 159, the stock trades at 8xFY14 EPS and 4.5xFY14 EV/ EBITDA. Currently the global pure play iron players are trading at 9.8xCY13/FY14 PE and 6xCY13/FY14E EV/ EBITDA. Moreover, NMDC has been trading at an average EV/EBITDA of 8x during the past two years. With a dividend yield of 3.7% and potential for strong future growth, the valuations look very attractive. We value the stock at 6xFY14 EV/ EBITDA and initiate our coverage with a BUY rating and TP of Rs 196,” says Emkay Global Financial Services research report.
Public holding more than 90% in Indian cos
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