The ministry of mines has authorized the premium levy (22.5%) on Donimalai mine, temporarily more than-riding the MMDR Act, 2015 to address the shortage of iron ore provide.
Reiterate obtain on valuations in spite of danger of larger levies. NMDC’s volume outlook has strengthened additional with the resumption of Donimalai mine anticipated by December-finish. Strong volume trend (sales of 3.3 MT in Nov 20, up 18% y-o-y), coupled with sturdy iron ore pricing (hike of Rs 500/t in Dec 20), must drive close to-term earnings. Resumption of the Donimalai mine must drive 11% Ebitda development in FY22E on the back of a 18% volume development. We reiterate our obtain on NMDC with a TP of Rs 129/share on valuation help in spite of the danger of government levies. The ministry of mines has authorized the premium levy (22.5%) on Donimalai mine, temporarily more than-riding the MMDR Act, 2015 to address the shortage of iron ore provide. However, the final premium would be decided by a committee that would evaluation Mineral (mining by government enterprise) Rules, 2015.
Earlier in Sept 20, the Karnataka government permitted NMDC to start off the mine on the above terms. Post this approval, NMDC would be capable to re- start off operations that came to a halt in Nov 18. It would have to spend 22.5% of the IBM determined typical sale value of iron ore. The Centre would constitute a committee to make a decision the premium payable by PSUs for future renewals. This implies that the renewal of 7 MTPA Kumaraswamy mine, due in Oct 22, would be at a premium as decided by the central government committee. The Chhattisgarh government could also demand a equivalent premium on mines, which had been renewed in 2019, posing a further danger.
We anticipate NMDC to restart operations from the Donimalai mine by December finish and accordingly raise our FY21E/FY22E volume estimate by ~3%/16% to 31.3MT/37MT.
However, incremental Ebitda contribution from Donimalai mine would be reduce due to levy of 22.5% premium. We anticipate Ebitda to develop ~11% CAGR more than FY20-22E in spite of a volume/realization CAGR of 8%/~5%. We see NMDC as a second order beneficiary of an enhancing domestic steel demand and costs. NMDC has raised costs by Rs 500/t for Dec 20 top to cumulative hikes of Rs 2,250/t more than final 5 months. We anticipate 2HFY21 Ebitda to ~60% larger y-o-y at Rs 50.8b on sturdy pricing.
The government’s proposal to levy a premium on NMDC on its mining leases has emerged as a crucial overhang on the stock. If a premium of 22.5% of income is levied on all of NMDC’s mines, it poses a downside danger of ~25% to our FY22E Ebitda.
We worth the stock at Rs 129/share on a SoTP basis – 4x FY22E EV/Ebitda for its core iron ore mining small business and ~25% book worth for the Nagarnar plant. At the CMP, the stock is trading at 2.8x its core iron ore mining small business. Reiterate obtain on sturdy earnings and valuation help.