IIFL see upside of 18-20% on NMDC

In an interview to CNBC-TV18, Tarang Bhanushali, IIFL evaluated the NMDC offer for sale (OFS) issue. He recommends buying NMDC OFS.

He finds NMDC's current valuations quite cheap. The broking firm has a nine month target of Rs 182 on the stock NMDC and values the company at 5 times EV/EBITDA. "Looking at the situation in Karnataka and Chhattisgarh we would remain a bit conservative. But even on our conservative estimate, it is giving an upside of around 18-20 percent, which is a good investment for a year or so," he added. Below is an edited transcript of Tarang Bhanushali’s  interview on CNBC-TV18. Q: What are you advising on National Mineral Development Corporation’s (NMDC) Offer for Sale? A: We are advising our clients to subscribe to the issue. We believe that the current valuations are quite cheap for NMDC. If you consider the floor price of Rs 147 on our estimated FY14 earnings it is trading at just 3.5 times EV/EBITDA which is quite lower compared to its peers internationally which trade at 5.5-6 times. Also, if you look at the historical EV/EBITDA band then it is quite high at 9 times - the average five years. So the current valuations are quite attractive and if you look at the current market situation in India, the availability of good quality ore is quite scarce. Hence, NMDC would be able to get its premium over the next two years and the decline which we are seeing in international prices would not be witnessed for NMDC. Q: If someone subscribes at Rs 145-150, then in one year what kind of appreciation or return can they see on this investment particularly from a retail side? A: We have a nine month target of Rs 182 on the stock. We value the company at 5 times EV/EBITDA. We are a bit conservative in the estimate but at the moment, looking at the situation in Karnataka and Chhattisgarh we would remain a bit conservative. But also on our conservative estimate, it is giving an upside of around 18-20 percent which we believe is a good investment for a year or so.