Buy NMDC; target of Rs 110: Motilal Oswal

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Motilal Oswal's research report on NMDC

Viability of NMDC’s mining operations is threat ened by Karnataka’s pre -condition to share of 80% revenue for renewing mining leases of Donimalai , which has capacity of 4mtpa. The outcome of legal and diplomatic settlement may set a precedent for other mines. This was unexpected because public sector enterprises (PSE s) have been getting their leases renewed without sharing of any revenue – e.g. le ases of Nalco’s bauxite mines have been recently extended to 2029 and 2032 without any share in revenue; many PSEs have been allotted coal blocks on a nomination basis.

Outlook

The stock is getting de -rated due to uncertainties around longevity of mining profit and delays in commissioning of the steel plant. We, thus, reduce the valuation multiple to 3x FY20E EV/EBITDA (v/s 5x earlier) and book value for cost of steel plant. Consequently, we value the stock at INR110/share. Maintain Buy.

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