Sunidhi Research |

1

NMDC Ltd
Valuations nearing fair value








NMDC Q4FY14 results were broadly in line with our estimates. We expected
Revenue/Ebidta/PAT of `36bn/24bn/21bn against which company reported
38bn/25bn/19bn. Blended NSRs stood at `3991/tonne, which were in line with our
estimates. We expected higher ralizations i) from Chattisgarh due to price hike taken
by the company, and ii) higher auction premium in Karnataka. However,
EBIDTA/tonne was marginally disappointing due to higher expenses like employee
costs etc. We believe NMDC is in a sweet spot given acute shortage of iron ore in
domestic market. Price cuts look quite distant from here on despite weak
international prices. We are structuraly very positive on Indian resource stocks against
the pure converters. Post strong run up of the stock price we maintain our Neutral
rating on the stock despite increasing our valuation multiple to 6x from 5x earlier on
FY16E EV/EBITDA basis with a target price of `190.

Volume growth on course with domestic shortage and ESSAR pipeline
commissioning
NMDC reported 9.62mnt volumes in Q4FY14,17% higher YoY. Such remarkable growth
in volume has set the tone right for NMDC. IT has ramped up its volume after the
restart of Essar pipeline during Q4FY14. The company had earlier guided for a volume
of 32- 35 mt for FY15, which should not be a problem assuming there wont be any
major disruption in this pipeline again. Also, the company has been ramping up its
volume in Karnataka. In addition, the recent ban on 26 mines including 16 merchant
mines in Odisha has created an opportunity for NMDC to supply to various end users
in and around Odisha and Chhattisgarh.

Domestic Price outlook stronger albeit weak international prices
West coast steel mills in India could resort to import substitution for iron ore as
landed cost for imported iron ore lumps is c.USD106/t compared to USD111/t for
NMDC ore. However sudden demand from eastern coast and central Indian mills
would tempt NMDC not to cut its ore prices in near term. Closure of 26 mines in
Odisha, particularly merchant miners closure would help NMDC to not match the
falling international prices. Though fines still continue to trade at discount, thus we do
not foresee any reduction in ore prices by NMDC over near term. However price rise
looks bit aggressive as NMDC may not allow import price gap to widen.

Valuation and Recommendation
We maintain our positive stance on the company and continue to believe its dominant
position in iron supply especially in restricted iron ore supply market domestically.
However recent run up in stock price seems to discount much of the positives.
Additionally capital allocation to steel plant will accelerate from here on and which
could continue to haunt investor sentiments. However higher dividend payout
remains the silver lining for returns. At the same time we would still like to play for
the uncertainty ride prevailing in Odisha. We tweak our multiples higher ( to 6x from
5x earlier) to incorporate higher than expected annual volume guidance of 35mnt. We
maintain Neutral recommendation with price objective of `190 (earlier 167).


































































































































































































R
e
s
u
l
t

U
p
d
a
t
e

Metals & Mining
Sector Outlook - Positive
June 03, 2014
Financials Revenues EBIDTA Adj NP Adj. EPS P.E EV/EBIDTA ROE
` mn

` x x %
FY12 113689 86462 64992 16.4 8.8 4.7 39
FY13 112619 89259 72654 18.5 7.9 4.2 33
FY14 107043 73752 63405 16.0 9.1 4.9 24
FY15E 119130 77026 64834 16.4 8.9 4.6 23
FY16E 124897 80424 67774 17.1 8.5 4.7 22
Source: Company, Sunidhi Research
8.2%
5.4%
3.6% 3.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Revenue EBIDTA PBT APAT
FY13-FY16E CAGR

Recommendation Neutral
CMP (`) 175
Price Target (`) 190
Upside (%) 9%
52 Week H / L ` 189/93
BSE 30 24685

Key Data
No.of Shares, Mn. 3964.7
Mcap, ` Mn 693824.3
Mcap,USD Mn @ `60 11563.7
2 W Avg Qty (BSE+NSE) Mn 6.0

Share holding, Mar'14
Promoters 80.0
FII 6.2
DII 10.6
Public & Others 3.2

Performance 1 M 3 M 6 M 12 M
Stock Return % 17.5 32.4 31.3 47.7
Relative Return % 7.9 15.5 -8.0 19.9

-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
M
a
y
-
1
3
J
u
l
-
1
3
A
u
g
-
1
3
S
e
p
-
1
3
O
c
t
-
1
3
N
o
v
-
1
3
D
e
c
-
1
3
J
a
n
-
1
4
F
e
b
-
1
4
M
a
r
-
1
4
A
p
r
-
1
4
M
a
y
-
1
4
J
u
n
-
1
4
NMDC NIFTY

Chintan J.Mehta
Chintan.m@sunidhi.com
Phone: +91-022-66106838


NMDC Ltd

Sunidhi Research |
2

Karnataka e-auction volumes were good in Q4FY14, Realizations could be firmer
Q3FY14 results main highlights were higher e-auction realizations from Karnataka. In Q4FY14,
fines realization saw sharp fall, lumps prices were firmer. Moreover than that Lumps volume were
17% higher QoQ against 10% volume growth in fines during Q4FY14. Such higher lump volumes
with firm prices could see better realization from Karnataka as well.

Realization Break up

NMDC sold 10.1 MnT Iron Ore (6 MnT Fines & 4.1 MnT Lumps) in Karnataka E-auction in FY14
Lumps Fines
Month W.A. Grade W.A. Bid Price Allotted Qty W.A. Grade W.A. Bid Price Allotted Qty
Apr-13 63 4,053 232,000 61.2 2,600 420000
May-13 62.5 3,950 332,000 60.8 2,255 524000
Jun-13 63 3,990 308,000 60.5 2,525 496000
Jul-13 62.3 3,826 136,000 60.5 2,037 556000
Aug-13 62.6 3,655 324,000 60.7 2,170 524000
Sep-13 63 3,627 476,000 60.5 2,450 476000
Oct-13 63 3,795 376,000 60.5 2,287 468000
Nov-13 63 3,756 312,000 60.5 2,901 476000
Dec-13 62.2 3,810 364,000 60 3,448 460000
Jan-14 62.4 3,800 524,000 60 2,610 460000
Feb-14 62.8 3,926 400,000 60 2390 672000
Mar-14 62.2 3,888 304,000 60 2370 412000
Total 62.67 3907 4088000 60.43 2380 5944000
Source: Sunidhi Research

Quarterly Performance

Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY QoQ
Net revenues 25,937 28,379 26,118 20,477 30,767 28706 24799 28232 38845 26% 38%
Stock adj -396 -131 -487 -495 -500 243 488 -58 -803 61% 1280%
Raw material charges 61 86 62 85 85 39 80 88 59 -31% -33%
Stores and spares 808 537 398 640 738 618 615 833 1389 88% 67%
Employee costs 1,265 1,353 1,440 1,392 1,420 1483 1447 1574 2559 80% 63%
Royalty and cess 2,928 2,231 2,211 2,047 2,870 2236 1824 2256 3289 15% 46%
SGA -23 361 2,127 1,764 2,460 2911 3664 2432 4467 82% 84%
Other expenses 1,529 946 1,020 1,131 1,476 2125 1745 2081 3189 116% 53%
Total expenditure 6,172 5,383 6,771 6,564 8,549 9654 9863 9204 14148 65% 54%
EBITDA 19,765 22,996 19,347 13,913 22,218 19052 14936 19028 24697 11% 30%
Depreciation 321 328 332 339 359 364 348 362 431 20% 19%
EBIT 19,443 22,668 19,016 13,574 21,859 18688 14588 18666 24266 11% 30%
Other income 5,477 5,546 5,832 5,563 5,507 5209 5384 5077 5275 -4% 4%
Interest 15

18.5
PBT 24,905 28,214 24,848 19,137 27,365 23,897 19,972 23,743 29,523 8% 24%
Extra-ordinary items 513

-454.8
Reported PBT 24,392 28,214 24,848 19,137 27,365 23,897 19,972 23,743 29,978 10% 26%
Current taxes 7,970 9,154 8,062 6,209 8,878 8175.5 6788.3 8070.4 10356 17% 28%
PAT 16,423 19,060 16,786 12,928 18,487 15,722 13,184 15,673 19,621 6% 25%
Adj PAT 15,910 19,060 16,786 12,928 18,487 15,722 13,184 15,673 19,621 6% 25%
E.P.S 4.1 4.8 4.2 3.3 4.7 4 3.3 4.0 4.9 5% 25%
Operating Matrix
Production (mn
tonnes) 7 6.87 5.37 5.32 8.2 6.94 5.95 7.28 10.01 22% 37%
Dispatches (mn
tonnes) 6.5 6.85 5.87 5.32 8.2 7.24 6.51 7.5 9.62 17% 28%
Blended realization
(`/tonne) 4,005 4,143 4,449 3,849 3,752 3,954 3,779 3,764 3,991 6% 6%
EBIDTA/tonne 3041 3357 3296 2615 2710 2631 2294 2537 2567 -5% 1%
Source: Sunidhi Research

NMDC Ltd

Sunidhi Research |
3

Assumptions and recommendation
We maintain our positive stance on the company and continue to believe its dominant position in
iron supply especially in restricted iron ore supply market domestically. However recent run up in
stock price seems to discount much of the positives. Aggressive returns from here on looks
difficult considering 9-10% volume growth for FY15E. Additionally capital allocation to steel plant
will accelerate from here on and which could continue to haunt investor sentiments. However
higher dividend payout remains the silver lining for returns. We tweak our estimates for FY15 to
incorporate higher volumes and higher other expenses as well. We maintain Neutral
recommendation with price target of `190. However any meaningful correction in stock prices
could be used as an entry point for the stock.


2015E 2016E
Iron-ore realization (`/ton)
Domestic lumps (including royalty) 4,758 4,468
Domestic fines (Including royalty) 3,042 2,888
Blended (Including royalty) 3,796 3,640
Export 6,600 6,237
Iron-ore volumes (mn tons)
Chhattisgarh 23.0 23.5
Karnataka 11.0 13.5
Total 34.0 37.0
Lumps 11 12
Fines 22 24
Lumps (%) 33 33
Domestic (%) 92 94
EBITDA/ton (`) 2,389 2,312
Source: Sunidhi Research

Valuation Methodology
EBITDA(FY16E) EV/EBITDA EV
Value per
share
(` mn) (X) (` mn) (`)
EBITDA 86,420 6.0 518,518 131
Net debt (208,291) (53)
CWIP (steel plant) 23,493 6
Target price (`) 750,302 189
Source: Sunidhi Research


















NMDC Ltd

Sunidhi Research |
4


Valuations Summary

Balance Sheet (` mn)
Year End-March FY12 FY13 FY14P FY15E FY16E Year End-March FY12 FY13 FY14P FY15E FY16E
Per share (`)


Sources of Funds

EPS 18.5 16.0 17.0 17.4 17.8 Equity Share Capital 3965 3965 3965 3965 3965
CEPS

Reserves & Surplus 240099 271145 280872 308153 332495
BVPS 61.5 69.4 71.8 78.7 84.9 Net Worth 244064 275110 284837 312118 336460
DPS 4.5 7.0 12.5 9 10

Loan Funds 0 0 0 0 0
Payout (%) 24% 44% 73% 52% 56%

Deferred Tax Liability 1001 1045 1045 1045 1045
Valuation (x)


Capital Employed 245065 276155 285882 313163 337505
P/E 9.5 10.9 10.3 10.1 9.8

Application of Funds
P/BV 2.8 2.5 2.4 2.2 2.1

Gross Block 23882 25820 40530 46480 52980
EV/EBITDA 5.5 6.6 5.7 5.9 5.6

Less: Depreciation 11994 13173 14997 17390 20125
Dividend Yield (%) 3% 4% 7% 5% 6%

Net Block 11888 12647 25532 29089 32854
Return ratio (%)


WIP 14942 32361 44851 72551 99551
EBIDTA Margin 79% 69% 65% 63% 64%

Net Fixed Assets 26830 45008 70383 101640 132405
PAT Margin 65% 59% 54% 53% 52%

Investments 2478 2496 2496 2496 2496
ROAE 33% 24% 24% 23% 22%

Current Assets 237111 261385 285141 265088 263374
ROACE 33% 24% 24% 23% 22%

Debtors 7370 10822 11383 12510 13079
Leverage Ratios (x)


Inventory 4589 6375 7385 7736 8073
Total D/E 0.0 0.0 0.0 0.0 0.0

Cash 202646 210258 232441 210911 208291
Net Debt/Equity -0.8 -0.8 -0.8 -0.7 -0.6

Others 22506 33931 33931 33931 33931
Interest Coverage - - - - -

Current Liabilities 21420 32788 72192 56116 60824
Current ratio 11.1 8.0 3.9 4.7 4.3

Creditors 1658 1608 1826 1913 1996
Growth Ratios (%)


Provisions 19762 31181 70366 54204 58828
Income growth -1% -5% 16% 5% 4%

Net Current Asset 215691 228597 212949 208972 202550
EBITDA growth 3% -17% 10% 1% 5%

Misc Expenses 66 54 54 54 54
PAT growth 12% -13% 6% 2% 2%

Total 245065 276155 285882 313163 337506
Turnover Ratios


Cash flow Statement
F.A Turnover x 9.5 8.5 4.9 4.5 4.1

Year End-March FY12 FY13 FY14P FY15E FY16E
Inventory Days 12.6 17.5 20.2 21.2 22.1

PBT 107595 94624 102217 101251 105270
Debtors Days 20.2 29.6 31.2 34.3 35.8

Depreciation 1878 1446 1825 2393 2735
Income Statement (` mn)

Interest Exp -11075 -19643 -22029 -20731 -18964
Year End-March FY12 FY13 FY14P FY15E FY16E Others 45 -36 39185 -16163 4624
Revenues 112619 107043 124012 129907 135566

CF before W.cap 89875 74023 120575 66312 91439
Op. Expenses 23360 33291 43001 47820 49147

Inc/dec in W.cap -8908 -2312 -1353 -1391 -823
EBITDA 89259 73752 81011 82087 86420

Op CF after W.cap 80967 71711 119222 64921 90616
Other Income 20165 22389 23031 21556 21586

Less Taxes -35021 -41000 -34754 -32400 -34739
Depreciation 1302 1385 1825 2393 2735

Net CF From
Operations 45946 30711 84468 32521 55877
EBIT 87958 72367 79186 79695 83684

Inc/(dec) in F.A +
CWIP -15088 -19774 -27200 -33650 -33500
Interest 15 132 0 0 0

(Pur)/sale of
Investments -1042 -19 0 0 0
PBT 107595 94624 102217 101251 105270

others 19658 22010 22652 21169 21191
Tax 34941 31219 34754 32400 34739

CF from Invst
Activities 3528 2216 -4548 -12481 -12309
PAT 72654 63405 67463 68850 70531

Loan Raised/(repaid) 0 0 0 0 1
Source: Company, Sunidhi Research

Dividend -9942 -19109 -23094 -23094 -23094

CF from Fin Activities -19109 -25343 -57736 -41570 -46188

Net inc /(dec) in cash 30365 7612 22184 -21530 -2620

Op. bal of cash 172281 202646 210258 232441 210911

Cl. balance of cash 202646 210258 232441 210911 208291




NMDC Ltd

Sunidhi Research |
5













Sunidhis Rating Rationale
The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be
classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock
to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months.
Stocks between these bands are classified as Neutral.


(For Mid & Small cap stocks from 12 months perspective)

BUY Absolute Return >20%
ACCUMULATE Absolute Return Between 10-20%
HOLD Absolute Return Between 0-10%
REDUCE Absolute Return 0 To Negative 10%
SELL Absolute Return > Negative 10%

Apart from Absolute returns our rating for a stock would also include subjective factors like macro environment, outlook of the industry
in which the company is operating, growth expectations from the company vis a vis its peers, scope for P/E re-rating/de-rating for the
broader market and the company in specific.



SUNIDHI SECURITIES & FINANCE LTD

Member: National Stock Exchange (Capital, F&O & Debt Market) & The Stock Exchange, Mumbai
SEBI Registration Numbers: NSE: INB 230676436 BSE: INB 010676436

Maker Chamber IV, 14th Floor, Nariman Point, Mumbai: 400 021
Tel: (+91-22) 6636 9669 Fax: (+91-22) 6631 8637 Web-site: http://www.sunidhi.com



Disclaimer: "This Report is published by Sunidhi Securities & Finance Ltd.("Sunidhi") for private circulation. This report is
meant for informational purposes and is not be construed as a solicitation or an offer to buy or sell any securities or related
financial instruments. While utmost care has been taken in preparing this report, we claim no responsibility for its accuracy.
Recipients should not regard the report as a substitute for the exercise of their own judgment. Any opinions expressed in
this report are subject to change without any notice and this report is not under any obligation to update or keep current
the information contained herein. Past performance is not necessarily indicative of future results. This Report accepts no
liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. Sunidhi and its
associated companies, directors, officers and employees may from time to time have a long or short position in the
securities mentioned and may sell or buy such securities, or act upon information contained herein prior to the publication
thereof. Sunidhi may also provide other financial services to the companies mentioned in this report."