Analyst Corner – NMDC: Maintain ‘hold’ with revised TP of Rs 182 per share

We keep ‘maintain’ with a revised goal worth of Rs 182/share (Rs 114 earlier); the rise in goal worth displays the bulge in iron ore costs/EBITDA trajectory.

NMDC reported higher than anticipated Q4FY21 EBITDA at Rs 42.4billion. FY21 EBITDA to OCF conversion (83%) has been highest since FY16. The important thing ingredient of EBITDA shock has been decrease than anticipated royalty incidence of Rs 1.5billion for Q4FY21 — implies Rs 160/te on volumes of 9.3mnte (ex kumaraswamy mines). Given extra incidence quantities to 22.5%, we search extra clarification on the identical on the name scheduled immediately. EBITDA/te at Rs 3,818 is ready for one more improve in Q1FY22; seems to be peakish given rising home provide, lengthy product demand and worth headwind. With 22.5% extra premium prolonged to all mines (barring Kumaraswamy), the dangers to enterprise mannequin has considerably diminished. We keep ‘maintain’ with a revised goal worth of Rs 182/share (Rs 114 earlier); the rise in goal worth displays the bulge in iron ore costs/EBITDA trajectory.

Substantial worth hikes have taken EBITDA to ~ Rs 3818/te from Rs 2980/te QoQ: Q4FY21 witnessed 29% QoQ and 20% YoY improve in gross sales quantity. Restart of Donimalai in Feb 21 helped Karnataka gross sales to extend 60% YoY and 22% QoQ (contributes 16% of general gross sales now). Regardless of industry- vast disruption Could’21 volumes for NMDC at 3.3mnte is commendable. Pricing and EBITDA/te although seems peakings.

Key notables for Q4FY21: Rs 2.27billion of anticipated credit score loss has been supplied for FY21 (Rs 935million for Q4FY21) in different expense — Rs 2.34billion of provision for unhealthy and uncertain money owed will be seen in cashflows. The influence of upper royalty (150% of the royalty payable) on all of the iron ore mines of NMDC besides Kumaraswamy Mines at Karnataka is Rs 1.5billion for the present interval and is included underneath Royalty and different levies.

Key coverage adjustments: With the elevated incidence of royalty, the renewal of mining leases and continuity of mining dangers are behind the corporate. Authorities of India was subsidising exports of NMDC to Japan and Korea, which has successfully stopped from Q1FY22. Thus export obligation of NMDC turns into 30%. Exports can nonetheless occur if its viable to export with an obligation of 30%. There, may even be no separate railway freight concessions on the ore.

Valuations and key dangers: We keep our HOLD ranking on NMDC with a revised goal worth of Rs182/share (DCF). The valuation is increased than what by cycle RoE would dictate for the corporate. The RoE bulge seen in FY22/23E will ultimately normalise.