Buy NMDC; target of Rs 231: Motilal Oswal

“NMDC 1QFY13 adjusted PAT grew 14% QoQ to INR19.1b (v/s est INR18.9b). Net Sales grew 9% QoQ to INR28.4b due to higher realization and shipments. Average iron ore realization increased 7% QoQ to INR4,275/t (USD78/t) while total shipments increased 2% QoQ at 6.6m tons. EBITDA increased 16% QoQ to INR23b on higher realization and lower cost. EBITDA/ton increased 5% QoQ to USD64. Most of the cost was on expected lines; however, royalty cost declined significantly by 24% QoQ to INR2.2b. Other income increased 4% QoQ to INR5.5b.”

“We expect total shipments to grow 5% YoY to 28.7m tons in FY13 helped by expected commissioning of loop line and '11b' block in Bailadila region during 3QFY13. Also, we expect realization to remain relatively cushioned from International fall in benchmark prices due to shortage of iron ore in India. Moreover, with increase investment in pelletization (expect 22mtpa capacity to be commissioned in 2012), the discount between iron ore fines to lumps will narrow in line with international benchmarks. Although we remain bearish on steel sector due to global overcapacity and demand slow down, we believe NMDC will outperform the Indian steel players due to low cost of operations and increasing shortage of iron ore in India.”

“Over FY12-14 we expect EPS CAGR of 15% on the backdrop of 12% CAGR in volumes. Stock is trading at attractive FY14 valuations of 3.9x EV/EBITDA, 7.6x P/E, 2x P/BV (RoE 26.8%). R&R is expected to increase 50% YoY once JORC certification is completed. Maintain Buy,” says Motilal Oswal research report.  

Institutional holding more than 40% in Indian cos

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