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UBS Investment Research
NMDC
Q3 FY11 results below estimates
Results below UBS and consensus estimates
Q3 FY11 PAT of Rs15.2bn (+81% YoY, +10% QoQ) was lower than the UBS
estimate of Rs16.9bn and consensus estimate of Rs17.4bn. EBITDA at Rs20.2bn
(+87% YoY, +10% QoQ) was also lower than UBS and consensus estimates of
Rs23bn and Rs21.4bn. PAT and EBITDA were lower than expectations largely
due to disappointment at the top line. Net sales of Rs26.2bn (65% YoY, 7% QoQ)
were lower than UBS and consensus estimates. Iron ore volumes rose 2% YoY to
6.3mt but net ASP declined 13% QoQ (Rs4,130/t)—lower than our estimate.
EBITDA per tonne declined 11% QoQ led by lower realisations
EBITDA/t declined 11% QoQ to Rs3,200/t largely due to lower ASP and a
marginal increase in royalty expense to Rs417/t (+7% QoQ). This was partly offset
by a 23% QoQ increase in volumes reducing fixed costs/t. Freight costs declined
18% QoQ to Rs1.1bn due to lower export volumes despite an increase in freight on
exports (+28% QoQ to Rs2,558/t). Net ASPs declined due to a higher mix of
domestic sales, fines, and a decline in domestic ASP.
NMDC raised domestic iron ore fines prices by 9.4% for Q4 FY11 over Q1
NMDC raised domestic fines prices by 9.4% (2/3rd of the 14% increase in Q4 price
versus Q1) for Q4 to Rs3,365/t over the base price of Rs3,078/t in Q1 FY11.
Pricing for FY12 is not decided. We assume flat ASP growth in FY12. We intend
to revisit our estimates.
Valuation: maintain Sell and price target of Rs210
We continue to value the iron ore business using NPV and the steel business on
book value of investments as at FY11E. We remain cautious due to expensive
valuations.
Q3 FY11 results highlights
Net sales in Q3 was impacted negatively due to:
(1) Higher mix of domestic sales—Domestic volume was 93% of total volume
in Q3 (87% in Q2).
(2) Higher mix of fines in the domestic product mix
— Fines as a percentage of total domestic volume increased to 57% versus
54% in Q2
(3) Net iron ore realisation decline of 13% QoQ to Rs4,130 (+61% YoY):
— Domestic blended realisation declined to Rs4,000/t (+65% YoY, -10%
QoQ) in Q3 FY11. Average domestic fines prices declined 5% QoQ to
Rs3,199 per tonne. The higher mix of fines in total sales further lowered
domestic blended realisation in Q3.
— Export realisation declined to Rs5,907/t (+92% YoY, -9% QoQ) in Q3
FY11.
EBITDA/t declined 11% QoQ to Rs3,200/t largely due to lower ASP and a
marginal increase in royalty expense to Rs417/t (+7% QoQ). This was partly
offset by a 23% QoQ increase in volumes reducing fixed costs/t. Freight
costs declined 18% QoQ to Rs1.1bn due to lower export volumes despite an
increase in freight on exports (+28% QoQ to Rs2,558/t).
NMDC raised domestic fines prices by 9.4% (2/3rd of the 14% increase in Q4
price versus Q1) for Q4 to Rs3,365/t over the base price of Rs3,078 in Q1
FY11. This is a 5% QoQ increase.
NMDC still remains the most expensive iron ore stock globally under our
coverage. We maintain our Sell rating on the stock.
There are likely to be downside risks to our earnings estimates. We will
review our estimates as we get more clarity on FY12 pricing methodology.
NMDC
NMDC is India's largest iron ore mining company with 31.7mt capacity. It plans
to expand this to 50mt by FY15. Although the company has mining interests in
other minerals, iron ore sales have accounted for 99.5% of total sales in the past
six years. The company is also diversifying into steel and has plans to set up a
3mt plant in Chhattisgarh and a 2mt plant in Karnataka.
Statement of Risk
NMDC is exposed to cyclical downturns in the iron ore and steel business. A
delay in greenfield steel expansion in India also could impact NMDC’s domestic
iron ore sales volumes. Maoist attacks remain a threat at the Bailadila complex.
Regulatory risks include an increase in royalty and export duty, restrictions on
exports and higher tax.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
NMDC
Q3 FY11 results below estimates
Results below UBS and consensus estimates
Q3 FY11 PAT of Rs15.2bn (+81% YoY, +10% QoQ) was lower than the UBS
estimate of Rs16.9bn and consensus estimate of Rs17.4bn. EBITDA at Rs20.2bn
(+87% YoY, +10% QoQ) was also lower than UBS and consensus estimates of
Rs23bn and Rs21.4bn. PAT and EBITDA were lower than expectations largely
due to disappointment at the top line. Net sales of Rs26.2bn (65% YoY, 7% QoQ)
were lower than UBS and consensus estimates. Iron ore volumes rose 2% YoY to
6.3mt but net ASP declined 13% QoQ (Rs4,130/t)—lower than our estimate.
EBITDA per tonne declined 11% QoQ led by lower realisations
EBITDA/t declined 11% QoQ to Rs3,200/t largely due to lower ASP and a
marginal increase in royalty expense to Rs417/t (+7% QoQ). This was partly offset
by a 23% QoQ increase in volumes reducing fixed costs/t. Freight costs declined
18% QoQ to Rs1.1bn due to lower export volumes despite an increase in freight on
exports (+28% QoQ to Rs2,558/t). Net ASPs declined due to a higher mix of
domestic sales, fines, and a decline in domestic ASP.
NMDC raised domestic iron ore fines prices by 9.4% for Q4 FY11 over Q1
NMDC raised domestic fines prices by 9.4% (2/3rd of the 14% increase in Q4 price
versus Q1) for Q4 to Rs3,365/t over the base price of Rs3,078/t in Q1 FY11.
Pricing for FY12 is not decided. We assume flat ASP growth in FY12. We intend
to revisit our estimates.
Valuation: maintain Sell and price target of Rs210
We continue to value the iron ore business using NPV and the steel business on
book value of investments as at FY11E. We remain cautious due to expensive
valuations.
Q3 FY11 results highlights
Net sales in Q3 was impacted negatively due to:
(1) Higher mix of domestic sales—Domestic volume was 93% of total volume
in Q3 (87% in Q2).
(2) Higher mix of fines in the domestic product mix
— Fines as a percentage of total domestic volume increased to 57% versus
54% in Q2
(3) Net iron ore realisation decline of 13% QoQ to Rs4,130 (+61% YoY):
— Domestic blended realisation declined to Rs4,000/t (+65% YoY, -10%
QoQ) in Q3 FY11. Average domestic fines prices declined 5% QoQ to
Rs3,199 per tonne. The higher mix of fines in total sales further lowered
domestic blended realisation in Q3.
— Export realisation declined to Rs5,907/t (+92% YoY, -9% QoQ) in Q3
FY11.
EBITDA/t declined 11% QoQ to Rs3,200/t largely due to lower ASP and a
marginal increase in royalty expense to Rs417/t (+7% QoQ). This was partly
offset by a 23% QoQ increase in volumes reducing fixed costs/t. Freight
costs declined 18% QoQ to Rs1.1bn due to lower export volumes despite an
increase in freight on exports (+28% QoQ to Rs2,558/t).
NMDC raised domestic fines prices by 9.4% (2/3rd of the 14% increase in Q4
price versus Q1) for Q4 to Rs3,365/t over the base price of Rs3,078 in Q1
FY11. This is a 5% QoQ increase.
NMDC still remains the most expensive iron ore stock globally under our
coverage. We maintain our Sell rating on the stock.
There are likely to be downside risks to our earnings estimates. We will
review our estimates as we get more clarity on FY12 pricing methodology.
NMDC
NMDC is India's largest iron ore mining company with 31.7mt capacity. It plans
to expand this to 50mt by FY15. Although the company has mining interests in
other minerals, iron ore sales have accounted for 99.5% of total sales in the past
six years. The company is also diversifying into steel and has plans to set up a
3mt plant in Chhattisgarh and a 2mt plant in Karnataka.
Statement of Risk
NMDC is exposed to cyclical downturns in the iron ore and steel business. A
delay in greenfield steel expansion in India also could impact NMDC’s domestic
iron ore sales volumes. Maoist attacks remain a threat at the Bailadila complex.
Regulatory risks include an increase in royalty and export duty, restrictions on
exports and higher tax.
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