Buy NMDC; target of Rs 175: Motilal Oswal

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Motilal Oswal's research report on NMDC

2QFY19 adjusted EBITDA declined 7% QoQ (+8% YoY) to INR13.8b, marginally below our estimate of INR14.8b due to lower-than-expected realization and higher operating expenses. EBITDA is adjusted for (a) rail line doubling payment of INR480m and (b) expected credit loss of INR747m, which are non-recurring. Adjusted PAT declined 6% QoQ (+9% YoY) to INR9.1b (our estimate: INR9.2b). Production was down 25% QoQ (-27% YoY) to 5.3mt, while sales declined 1% QoQ (-19% YoY) to 6.7mt due to lower offtake from Chhattisgarh. Domestic realization increased INR62 QoQ to INR3,635/t (our estimate: INR3,800). Higher discounting at Karnataka impacted realization. EBITDA per ton declined 6% QoQ to INR2,061 (USD30) due to higher operating expenses.

Outlook

We value NMDC at 5x FY20E EV/EBITDA and CWIP at book value at INR175/sh. If state govt. starts charging special premiums for extending mining leases, margins will be hit correspondingly. Maintain Buy.

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