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We expect NMDC to report strong volumes on the back of steady local demand. 1QFY12
volumes could be higher by 40-45% yoy at 8-8.5MT. Pricing remains mixed. Maintain BUY.
Expect strong volume buoyancy
NMDC is expected to maintain its strong volume buoyancy for iron ore witnessed in 4QFY12
where volumes grew by 25%. We expect production volumes in 1QFY12 to be in the range of
8-8.5MT (+40-45% yoy). There is an element of seasonality in volumes for NMDC with the
second half volumes being higher by 20-25% over the first half of the financial year.
Sales for 1QFY12 are expected to be higher by 30% yoy driven by strong local demand as
the impasse over mining in Karnataka continues. We expect full year sales volumes at 30MT.
Exports would have remained weak during the quarter as the multi-year volume contracts with
the Japanese Steel Mills (JSM) are yet to be signed. The last multi-year volume contract with
the JSMs expired in March 2011. Exports form about 10-15% NMDC's sales volumes.
Realizations remain mixed
Realizations for iron ore fines have weakened in the domestic markets due to imposition of
export duty of 20% on all types of iron ore exports other than iron ore pellets.
Realizations for lumps continue to remain strong due to its relative scarcity. Lumps are
currently selling at a premium of 55-60% over the prices of fines. NMDC's mines have a
relatively higher proportion of fines compared to its competitors.
Expansion on track
NMDC expects the uniflow system being implemented by the Indian Railways on the Vizag
line to be complete in the next 3-6 months. This would augment the logistics capacity of the
line by 3MT. The 11b deposit in Bailadila, Chhattisgarh is expected to commission by
December 2011 and would set the pace for strong volume growth in FY13. This mine is
expected to have an annual output of 7mt.
We have BUY on NMDC with a target price of Rs298.
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