HomeFinanceAnalyst Corner – NMDC: Maintain ‘hold’ with revised TP of Rs 182...

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

NMDC reported far better than anticipated Q4FY21 EBITDA at Rs 42.4billion. FY21 EBITDA to OCF conversion (83%) has been highest considering the fact that FY16. The essential element of EBITDA surprise has been reduce than anticipated royalty incidence of Rs 1.5billion for Q4FY21 — implies Rs 160/te on volumes of 9.3mnte (ex kumaraswamy mines). Given more incidence amounts to 22.5%, we seek more explanation on the identical at the get in touch with scheduled today. EBITDA/te at Rs 3,818 is set for a different raise in Q1FY22 appears peakish provided growing domestic provide, lengthy item demand and value headwind. With 22.5% more premium extended to all mines (barring Kumaraswamy), the dangers to organization model has drastically decreased. We sustain ‘hold’ with a revised target value of Rs 182/share (Rs 114 earlier) the raise in target value reflects the bulge in iron ore rates/EBITDA trajectory.

Substantial value hikes have taken EBITDA to ~ Rs 3818/te from Rs 2980/te QoQ: Q4FY21 witnessed 29% QoQ and 20% YoY raise in sales volume. Restart of Donimalai in Feb 21 helped Karnataka sales to raise 60% YoY and 22% QoQ (contributes 16% of all round sales now). Despite business- wide disruption May’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 loss has been supplied for FY21 (Rs 935million for Q4FY21) in other expense — Rs 2.34billion of provision for poor and doubtful debts can be seen in cashflows. The effect of larger royalty (150% of the royalty payable) on all the iron ore mines of NMDC except Kumaraswamy Mines at Karnataka is Rs 1.5billion for the existing period and is integrated beneath Royalty and other levies.

Key policy alterations: With the improved incidence of royalty, the renewal of mining leases and continuity of mining dangers are behind the corporation. Government of India was subsidising exports of NMDC to Japan and Korea, which has proficiently stopped from Q1FY22. Thus export duty of NMDC becomes 30%. Exports can nonetheless occur if its viable to export with a duty of 30%. There, will also be no separate railway freight concessions on the ore.

Valuations and essential dangers: We sustain our HOLD rating on NMDC with a revised target value of Rs182/share (DCF). The valuation is larger than what by way of cycle RoE would dictate for the corporation. The RoE bulge seen in FY22/23E will ultimately normalise.

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