4QFY12 Result Update

Institutional Equities

NMDC
29 May 2012
Reuters: NMDC.BO; Bloomberg: NMDC IN

Performance in Line; We Upgrade Stock to Hold

HOLD

NMDCs 4QFY12 results were in line, with EBITDA and PAT being 5%/2% above
our estimates, but 2%/8% below street estimates, respectively. Volume was 5%
above our estimates, but realisation was 4% below our expectation. Overall,
EBIT/tn was 2% above our estimate due to lower costs on the back of a drop in
selling expenses. We have revised our volume estimates downwards by 6% each
for FY13E and FY14E due to the delay in slurry pipeline returning to normalcy,
but we have revised our realisation assumptions upward by 4% each for the
same period on the back of weaking rupee, new pricing mechanism, the recent
strength in domestic iron ore prices and e-auction sales continuing for a longerthan-expected period. We have also increased other income estimate because of
reduction in capex assumption and higher yield assumption. The above factors
lead to 2% and 1% drop in EBITDA for FY13E and FY14E, respectively, but PAT
estimates have been revised upwards by 2% and 3% for the same period due to
higher other income. We upgrade our rating on the stock from Sell to Hold as we
roll forward our valuation multiple from FY13 to FY14. Our revised TP of Rs171
(11% above earlier TP of Rs154) is 2% higher than the CMP.
Subdued iron ore volume growth due to slurry pipeline demage: NMDC reported
31% YoY and 16% QoQ drop in iron ore production at 6.00mt for the quarter due to
demage to the slurry pipeline by Maoists. The company reported a 23% YoY drop in
volume at 6.45mt, but it was up 1% on QoQ basis due to inventory liquidation.
Realisation down QoQ due to price cuts, but seen up in 1QFY13: The company
went for a price cut at the beginning of 4QFY12, which resulted in 11% YoY and 9%
QoQ drop in blended realisation at Rs3,982/tn. We would like to highlight here that the
company also increased product prices by 5-6% at the beginning of 1QFY13.
Valuation turns reasonable: NMDC is currently trading at P/E multiples of 9.3x and
8.9x for FY13E and FY14E, respectively, while EV/EBITDA multiples are at 4.9x and
4.6x for the same period. Post follow-on public offer in March 2010, the stock traded at
average P/E and EV/EBITDA of 13.4x and 8.3x, respectively, but the current multiples
are near 2SD below average. Although the current multiple is higher than the global
average, we believe the premium valuation is likely to sustain due to longer mine life.
Our revised TP is 2% higher than the CMP and hence we upgrade our rating to Hold.

Sector: Steel

Y/E March (Rsmn)

4QFY11
3QFY12
Net sales
37,698
28,220
Raw material & employee costs
1,854
1,652
% of sales
4.9
5.9
Royalty & cess
3,342
2,623
% of sales
8.9
9.3
Selling expenses including freight
3,996
445
% of sales
10.6
1.6
Other operating expenses
1,116
892
% of sales
3.0
3.2
EBITDA
27,390
22,607
EBITDA (%)
72.7
80.1
Depreciation
420
345
Other income
4,433
5,254
Exceptional loss/(gain)
PBT
31,403
27,516
Provision for tax
10,416
8,928
-effective tax rate (%)
33.2
32.4
PAT
20,986
18,588
NPM (%)
49.8
55.5
EPS (Rs)
5.3
4.7
Source: Company, Nirmal Bang Institutional Equities Research

4QFY12
25,946
1,738
6.7
2,928
11.3
(23)
(0.1)
1,529
5.9
19,774
76.2
321
5,453
513
24,392
7,970
32.7
16,423
52.3
4.1

CMP: Rs168
Target Price: Rs171
Upside: 2%
Giriraj Daga
giriraj.daga@nirmalbang.com
+91-22-3926 8168
Sagar Karkhanis
sagar.karkhanis@nirmalbang.com
+91-22-3926 8089
Key Data
Current Shares O/S (mn)

3,964.7

Mkt Cap (Rsbn/US$bn)

665.5/12

52 Wk H / L (Rs)

280/136

Daily Vol. (3M NSE Avg.)

619,921

Price Performance (%)

1M

6M

1 Yr

NMDC

(4.4)

(11.9)

(35.0)

Nifty Index
Source: Bloomberg

(3.9)

2.8

(9.0)

YoY (%)
(31.2)
(6.3)

QoQ (%)
(8.1)
5.2

(12.4)

11.6

(100.6)

(105.1)

37.0

71.3

(27.8)

(12.5)

(23.5)
23.0

(6.7)
3.8

(22.3)
(23.5)

(11.4)
(10.7)

(21.7)

(11.6)

(21.7)

(11.6)

Please refer to the disclaimer towards the end of the document.

FY11
113,689
6,154
5.4
9,318
8.2
8,639
7.6
3,115
2.7
86,465
76.1
1,250
12,057
97,272
32,280
33.2
64,992
51.7
16.4

FY12
112,615
7,630
6.8
10,226
9.1
1,440
1.3
4,038
3.6
89,281
79.3
1,328
20,154
513
107,595
34,941
32.5
72,654
54.7
18.3

YoY (%)
(0.9)
24.0
9.8
(83.3)
29.6
3.3
6.2
67.2
10.6
8.2
11.8
11.8

Institutional Equities
Exhibit 1: Financial summary
Y/E March (Rsmn)
Revenue
YoY (%)
EBITDA
EBITDA margin (%)
PAT
EPS (Rs)
YoY (%)
RoE (%)
RoCE (%)
P/E (x)
EV/ EBITDA (x)

FY10
62,391
(17.5)
44,295
71.0
34,473
8.7
(21.2)
24.2
24.2
19.3
12.1

FY11
113,689
82.2
86,465
76.1
64,992
16.4
88.5
33.8
33.8
10.2
5.7

FY12
112,615
(0.9)
89,281
79.3
72,654
18.3
11.8
29.8
29.8
9.2
5.2

FY13E
112,291
(0.3)
87,861
78.2
71,592
18.1
(1.5)
24.3
24.3
9.3
4.9

FY14E
117,441
4.6
91,172
77.6
75,167
19.0
5.0
21.5
21.5
8.9
4.6

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Our estimates versus actuals

Description
Iron ore operational data
Production (mt)
Sales (mt)
Realisation (Rs/tn)
Costs incl. depreciation (Rs/tn)
EBIT (Rs/tn)
Segment-wise financials (Rsmn)
Revenue
Iron ore
Other minerals and services
Total
Less: inter-segment
Net revenue
EBIT
Iron ore
Other minerals and services
Unallocable
Total

4QFY11

3QFY12

4QFY12

YoY (%)

QoQ (%)

4QFY12E

Devi (%)

8.66
8.43
4,460
1,139
3,322

7.15
6.40
4,391
838
3,553

6.00
6.45
3,982
867
3,115

(30.7)
(23.5)
(10.7)
(23.9)
(6.2)

(16.0)
0.7
(9.3)
3.4
(12.3)

6.70
6.15
4,150
1,099
3,051

(10.4)
4.9
(4.1)
(21.1)
2.1

37,600
227
37,827
129
37,698

28,120
212
28,332
113
28,220

25,685
355
26,040
94
25,946

(31.7)
56.2
(31.2)
(27.2)
(31.2)

(8.7)
67.5
(8.1)
(16.4)
(8.1)

25,523
220
25,743
125
25,618

0.6
61.3
1.2
(24.8)
1.3

28,001
45
3,357
31,403

22,754
(12)
4,775
27,516

20,094
(395)
4,679
24,905

(28.2)
(976.9)
39.4
(20.7)

(11.7)
3,188.3
(2.0)
(9.5)

18,766
120
5,000
23,886

7.1
(428.8)
(6.4)
4.3

QoQ (%)
(8.1)
(12.5)
(11.6)

4QFY12E Devi (%) 4QFY12 BBE

25,618
1.3
27,561
18,886
4.7
20,155
16,123
1.9
17,842

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Our estimates versus actuals

Description
Revenue
EBITDA
PAT

4QFY11
37,698
27,390
20,986

3QFY12
28,220
22,607
18,588

4QFY12
25,946
19,774
16,423

YoY (%)
(31.2)
(27.8)
(21.7)

Devi (%)
(5.9)
(1.9)
(8.0)

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4: Change in earnings estimates

Description

Earlier assumptions

New assumptions

Change (%)

FY13E

FY14E

FY13E

FY14E

FY13E

FY14E

Iron ore volume (mt)

31.00

34.00

29.00

32.00

(6.5)

(5.9)

Realisation (Rs/tn)

3,700

3,500

3,850

3,650

4.1

4.3

Net sales

115,341

119,641

112,291

117,441

(2.6)

(1.8)

EBITDA

89,570

91,979

87,861

91,172

(1.9)

(0.9)

PAT

70,171

72,790

71,592

75,167

2.0

3.3

Operational details

Financials (Rsmn)

Source: Company, Nirmal Bang Institutional Equities Research

NMDC

Institutional Equities
Exhibit 5: One-year forward P/E

Exhibit 6: One-year forward average P/E

(Rs)
600

(x)
60
50

480

40

360

30
240

20

10

120

0
Jul-02

Feb-04

Oct-05

Jun-07

NMDC share price

Jan-09

8x

16x

Sep-10
24x

May-12

0
Jul-02
P/E

32x

Feb-04
Avg P/E

Oct-05

Jun-07

1 + StDev

Jan-09

1+ 2StDev

Sep-10
1 - StDev

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 7: One-year forward EV/EBITDA

Exhibit 8: One-year forward average EV/EBITDA

May-12
1- 3StDev

(x)
45

(Rs)
750

40

625

35
30

500

25

375

20
15

250

10

125

0
Apr-03

Oct-04

Apr-06

NMDC share price

Oct-07

3.0x

Apr-09

11.0x

Oct-10

19.0x

Apr-03

May-12

EV/EBITDA

27.0x

Oct-04

Apr-06

Avg EV/EBTDA

Oct-07
1 + StDev

Apr-09
1+ 2StDev

Oct-10

May-12

1+ 3StDev

1 - StDev

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 9: One-year forward P/E (post FPO)

Exhibit 10: One-year forward average P/E (post FPO)

(Rs)
350

(x)
19

300

16
250

13
200

10

150
100
Apr-10

Sep-10
NMDC share price

Feb-11
8x

Jul-11
11x

Dec-11
14x

May-12

7
Apr-10
P/E

17x

Sep-10

Feb-11

Avg P/E

1 + StDev

Jul-11
1+ 2StDev

Dec-11

May-12

1 - StDev

1- 2StDev

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 11: One-year forward EV/EBITDA (post FPO)

Exhibit 12: One-year forward average EV/EBITDA (post FPO)

(Rs)
350

(x)
13

300

11

250

200

150

100
Apr-10

Sep-10
NMDC share price

Feb-11
4.0x

Jul-11
6.0x

Dec-11
8.0x

May-12
10.0x

Source: Bloomberg, Nirmal Bang Institutional Equities Research

3
Apr-10

Sep-10
EV/EBITDA

Feb-11

Jul-11
Avg EV/EBTDA

Dec-11

May-12

1 + StDev

Source: Bloomberg, Nirmal Bang Institutional Equities Research

NMDC

Institutional Equities
Exhibit 13: Peer comparison
Summary

BHP Billiton Ltd

Rio Tinto PLC
Vale SA
Anglo American PLC
Fortescue Metals Group Ltd
Cliffs Natural Resources Inc
NMDC

CMP

Mcap

US$

US$bn

31.3
44.8
18.2
31.6
4.7
50.3
3.0

157.9
87.8
98.8
43.9
14.5
7.2
12.1

Performance (% chg)
3M
(18.5)
(24.4)
(27.7)
(26.5)
(20.0)
(23.2)
(17.0)
(23.4)

6M
(9.1)
(8.7)
(14.1)
(12.0)
0.3
(20.1)
(17.2)
(10.6)

12M
(33.2)
(36.3)
(35.0)
(35.9)
(31.8)
(43.9)
(48.7)
(36.0)

P/E (x)

P/BV (x)

ROE (%)

EV/EBITDA (x)

CY12/

CY13/

CY12/

CY13/

CY12/

CY13/

CY12/

CY13/

FY13

FY14

FY13

FY14

FY13

FY14

FY13

FY14

8.9
6.3
5.2
7.3
9.3
5.9
9.3
7.2

8.2
5.4
5.2
6.1
6.5
4.6
8.9
6.0

2.4
1.3
1.1
0.9
4.0
1.0
2.3
1.8

2.0
1.1
1.0
0.8
2.6
0.9
1.9
1.4

28.3
21.9
23.0
14.1
47.2
17.4
24.3
25.3

25.0
21.9
20.9
14.9
44.1
18.6
21.5
24.2

5.1
4.2
4.1
4.3
7.1
4.7
4.9
4.9

4.5
3.6
4.0
3.5
5.5
3.4
4.6
4.1

Source: Bloomberg, Nirmal Bang Institutional Equities Research

NMDC

Institutional Equities
Financials

bit 1: Exhibit 14: Income statement

Y/E March (Rsmn)

Exhibit 3: Exhibit 15: Cash flow

FY10

FY11

FY12

FY13E

FY14E

62,391

113,689

112,615

112,291

117,441

YoY growth (%)

(17.5)

82.2

(0.9)

(0.3)

4.6

Staff costs

4,195

4,924

5,291

5,550

5,850

% of sales

6.7

4.3

4.7

4.9

5.0

3,606

9,318

10,226

11,600

12,320

5.8

8.2

9.1

10.3

10.5

4,689

8,639

1,440

3,000

3,200

Revenue

Royalty & cess

% of sales
Selling exp & freight costs
% of sales

Y/E March (Rsmn)

FY10

FY11

FY12E

FY13E

FY14E

43,529

85,215

87,953

86,214

89,273

(Inc.)/dec. in working capital

9,257

(5,249)

(13,045)

5,481

(192)

Cash flow from operations

52,786

79,966

74,908

91,696

89,081

8,617

12,057

20,154

22,291

24,651

766

1,250

1,328

1,646

1,898

17,705

33,195

34,242

36,132

37,937

8,953

9,942

15,307

20,873

20,873

EBIT

Other income
Depreciation
Tax paid (-)
Dividends paid (-)

7.5

7.6

1.3

2.7

2.7

35,512

50,136

46,841

58,627

56,820

5,606

4,345

6,376

4,280

4,899

Capital expenditure (-)

4,202

5,152

10,459

26,500

46,500

9.0

3.8

5.7

3.8

4.2

Net cash after capex

31,310

44,984

36,382

32,127

10,320

Total expenditure

18,096

27,225

23,334

24,430

26,269

EBITDA

(Inc.)/dec. in investments

(46)

(595)

(1,121)

Cash from financial activities

(46)

(595)

(1,121)

(112)

(658)

(4,896)

Opening cash

97,397

128,549

172,281

202,646

234,773

Closing cash

128,549

172,281

202,646

234,773

245,094

31,153

43,731

30,365

32,127

10,320

Other expenditure
% of sales

44,295

86,465

89,281

87,861

91,172

EBITDA margin (%)

71.0

76.1

79.3

78.2

77.6

Depreciation

766

1,250

1,328

1,646

1,898

43,529

85,215

87,953

86,214

89,273

EBIT
Exceptional loss/(gain)

73

513

8,617

12,057

20,154

22,291

24,651

PBT

52,073

97,272

107,595

108,505

113,924

Provision for tax

17,601

32,280

34,941

36,914

38,757

33.8

33.2

32.5

34.0

34.0

34,473

64,992

72,654

71,592

YoY growth (%)

(21.2)

88.5

11.8

(1.5)
Exhibit5.05:

PAT margin (%)

55.3

57.2

64.5

63.8

Other income

Effective tax rate (%)

PAT

Source: Company, Nirmal Bang Institutional Equities Research

Share capital
Reserves and surplus
Shareholders' fund

Others

Change in cash

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 4:
75,167

64.0

Exhibit 6:
Exhibit 7: Exhibit 17: Key ratios

bit 2: Exhibit 16: Balance Sheet

Y/E March (Rsmn)

Net cash from operations

FY10

FY11

FY12

FY13E

FY14E

Y/E March

3,965

3,965

3,965

3,965

188,181

240,099

290,818

345,112

EPS

349,076

Book value

192,145

244,064

294,782

FY11

FY12

FY13E

FY14E

Per share (Rs)

3,965
138,760
142,724

FY10
8.7

16.4

18.3

18.1

19.0

36.0

48.5

61.6

74.4

88.0

Short term loan

Valuation (x)

Long term loan

P/E

19.3

10.2

9.2

9.3

8.9

142,724

192,145

244,064

294,782

349,076

P/BV

4.7

3.5

2.7

2.3

1.9

12.1

5.7

5.2

4.9

4.6

8.6

4.3

4.1

3.8

3.6

10.7

5.9

5.9

5.9

5.7

Total capital employed

Gross block

17,711

22,728

24,898

29,398

33,898

EV/EBITDA

Less: Acc depreciation

9,840

11,736

13,063

14,710

16,608

EV/sales

Net block

7,872

10,993

11,835

14,689

17,290

M-cap/sales

Capital WIP

5,561

6,772

15,061

37,061

79,061

Returns ratios (%)

13,432

17,764

26,896

51,749

96,351

RoCE

24.2

33.8

29.8

24.3

21.5

RoE

24.2

33.8

29.8

24.3

21.5

Net fixed assets

Investments
Cash and bank
Inventories
Debtors

761

1,357

2,478

2,478

2,478

128,549

172,281

202,646

234,773

245,094

2,988

4,154

4,589

4,525

4,831

EBITDA margin

71.0

76.1

79.3

78.2

77.6

7,634

PBIT margin

69.8

75.0

78.1

76.8

76.0

73.3

77.4

81.0

80.6

80.2

55.3

57.2

64.5

63.8

64.0

4,270

4,854

7,370

7,299

Margin ratios (%)

Other CA and loans & adv

6,829

10,427

22,506

16,844

17,616

PBT margin

Total CA and loans & adv

PAT margin

142,636

191,716

237,111

263,441

275,174

Creditors

5,205

5,717

4,083

4,886

5,254

Turnover ratios

Other current liabilities

2,320

2,002

5,620

4,501

5,354

Asset turnover ratio (x)

Provisions
Net current assets
Miscellaneous expenses
Deferred tax assets
Total assets

5.0

4.5

3.8

3.5

15.6

23.9

23.7

23.7

103.9

74.2

63.9

72.8

72.8

Debt-equity

0.0

0.0

0.0

0.0

0.0

Interest coverage ratio

0.0

0.0

0.0

0.0

0.0

5,952

10,088

11,716

11,716

11,716

129,160

173,908

215,691

242,337

252,850

Avg payment period (days)

220

145

(849)

(1,029)

(1,001)

(1,782)

(2,602)

142,724

192,145

244,064

Source: Company, Nirmal Bang Institutional Equities Research

3.5
25.0

Avg collection period (days)

294,782

349,076

Solvency ratios (x)

Source: Company, Nirmal Bang Institutional Equities Research

NMDC

Institutional Equities
Ratings track
Date

Rating

Market price (Rs)

Target price (Rs)

24 June 2011

Sell

252

208

1 August 2011

Sell

245

196

8 August 2011

Sell

247

222

9 January 2012

Sell

172

154

31 January 2012

Sell

179

154

12 April 2012

Sell

161

154

29 May 2012

Hold

168

171

NMDC

Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
HOLD 0-15%
SELL < 0%
This report is published by Nirmal Bangs Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated by
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