J.P. Morgan - NMDC

NMDC (NMDC IN) 4Q numbers in line; guidance of 32Mnt prod in FY15E		Overweight Price Target: Rs165.00 PT End Date: 31 Dec 2014

NMDC reported strong operating numbers for Q4FY14 with EBITDA at ~Rs24.7bn, in line with consensus and slightly ahead of our estimate. Reported PAT came in at Rs19.6bn, in line with the Street at Rs19.5bn. FY14 capex stood at Rs25.2bn, while net cash stood at Rs187bn vs. Rs225bn (Sep-13). While NMDC has cut lump prices by Rs200 in May, we expect the Odisha mining ban would induce NMDC to take some hikes from Jun 1. NMDC is guiding to FY15E production of 32Mnt vs. 30Mnt for FY14 (Source: Bloomberg). We are keeping our current estimates subject to further review following details from management.
· Strong Q4 on higher volumes and higher ASP/T: NMDC reported strong growth in revenues (+21% y/y, +38% q/q) driven by higher volumes and better ASP/t. Sales volumes increased 14% y/y (+26% q/q given seasonality) with exports increasing 52% q/q. Production increased 3% y/y and 35% q/q. FY14 exports stood at 2.3MT. ASP/T increased 9% q/q (+6% y/y) reflecting the impact of price hikes taken at end of 2Q. ASP/t came in ahead of our expectations (+2% q/q), implying better mix (higher sales of lumps). NMDC reported Q4FY14 EBITDA of Rs24.7bn (+23% y/y, +30% q/q) v/s JPMe Rs23.0bn and consensus at Rs24.4bn. EBITDA margins stood at 64%. Implied EBITDA/t came in at Rs2,627/t, +8% y/y and +3% q/q. Higher exports pushed up costs q/q (higher railway freight).
· PAT in line: NMDC reported PAT of Rs19.6bn (+34% y/y, +25% q/q) v/s JPMe at Rs18.8bn and consensus at Rs19.5bn. Depreciation increased 11% y/y (+19% q/q), while other income decreased 4% y/y (+4% q/q). Tax rates were higher at 35% vs. 34% in 3QFY14 and 31% in 4QFY13.
· Balance sheet, dividends: NMDC reported total capex of Rs25.2bn for FY14. Net cash stood at Rs187bn vs. Rs225bn (Sep-13). NMDC did not declare any final dividend, with FY14 dividend remaining at Rs8.5/sh (2 interim dividends of Rs3/sh and Rs5.5/sh) vs. our/consensus expectations of additional Rs1.5/Rs0.5 per share final dividend.
· Guidance: As per Bloomberg quoting NMDC’s chairman, the company has guided for production of 32Mnt in FY15E vs. 30Mnt in FY14. Further, NMDC plans to incur ~Rs35bn capex for FY15. We believe that a majority of capex would go toward 3MTPA steel plant at Chhattisgarh. We believe NMDC is likely to give out higher DPS y/y in FY15, given the strong cash position as well as the fiscal situation of the government.
· Essar slurry pipeline temporarily shut: As per our discussions with management, NMDC slurry pipeline has been shut for the last two weeks on account of leakages, which the company is currently addressing. Although the company did not give any timeline for restart of the pipeline, given the difficult terrain through which a pipeline passes through, it could take another 3-4 weeks as per management. The pipeline was supplying iron ore at the rate of ~0.5-0.6Mnt/month.

Table 1: NMDC 3QFY14 results summary

	4QFY13	3QFY14	4QFY14	y/y	q/q	FY13	FY14	y/y
Net sales	32,021	28,215	38,835
Other operating income	22	16	10
Net sales	32,043	28,232	38,845	21%	38%	107,043	120,582	13%
Accretion / (Decretion) to stock	(731)	(58)	(803)			(1,843)	(143)
Consumption of RM	76	88	59			309	265	-14%
Consumption of Stores & Spares	1,005	833	1,389	38%	67%	2,580	3,463	34%
Employee costs	1,615	1,574	2,559	58%	63%	5,801	7,064	22%
Selling Expenses incl freight out	3,929	2,432	4,467	14%	84%	8,180	13,474	65%
Royalty & cess	3,035	2,256	3,289	8%	46%	9,524	9,605	1%
Other expense	3,063	2,081	3,189	4%	53%	8,746	9,153	5%
Total expenditure	11,992	9,204	14,148	18%	54%	33,297	42,881	29%
EBITDA	20,050	19,028	24,697	23%	30%	73,746	77,701	5%
Depreciation	387	362	431	11%	19%	1,388	1,507	9%
Other income	5,474	5,077	5,275	-4%	4%	22,389	20,891	-7%
Finance cost	132	0	19			132	19	-86%
PBT	25,005	23,743	29,523	18%	24%	94,615	97,067	3%
Tax	7,804	8,070	10,356	33%	28%	31,227	33,391	7%
PAT	17,202	15,673	19,167	11%	22%	63,388	63,676	0%
Exceptional	2,552		(455)				-454.8
Reported PAT	14,650	15,673	19,621	34%	25%	63,388	64,131	1%
EBITDA margin	63%	67%	64%			69%	64%
Tax rate	31%	34%	35%			33%	34%
Revenue breakup
Iron ore	31,668	27,970	38,398	21%	37%	106,095	119,258	12%
Diamond	469	360	511	9%	42%	1,456	1,587	9%
Iron ore volumes
Production	9.57	7.31	9.86	3%	35%	27.2	30.0	10%
Sales	8.24	7.43	9.40	14%	26%	26.3	30.5	16%
Export Volumes		0.43	0.66		52%	1.6	2.3	43%
ASP	3,844	3,763	4,085	6%	9%	4,038	3,910	-3%
EBITDA/MT	2,434	2,560	2,627	8%	3%	2,807	2,548	-9%

Source: Company data, J.P. Morgan estimates

Figure 1: NMDC Quarterly sales volume and growth trend

Source: Company reports.
Figure 2: NMDC Quarterly ASP vs. EBITDA/MT Trend

Source: Company reports. Note: 4QFY13 EBITDA adjusted for one-time.
Figure 3: NMDC Quarterly EBITDA (Rs Mn) vs. EBITDA Margin

...

��

-->