Sales volume misses estimate… • NMDC :: ICICI Securities, PDF link

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Sales volume misses estimate…
• NMDC reported a subdued set of Q2FY15 numbers wherein total
operating income, EBITDA and PAT came in below our estimates.
NMDC numbers were below our estimates primarily of account of
muted volumes. Volume for the quarter came in at 7.3 Million tonnes
(MT), which was below our estimate of 7.6 MT
• NMDC reported a total operating income of | 3105.05 crore for the
quarter, up 25.2% YoY but below our estimate of | 3254.8 crore
• The EBITDA came in at | 2006.0 crore (EBITDA margin of 64.6%), up
34.3% YoY but below our estimate of | 2146.7 crore
• During the quarter, an exceptional expense of | 112.2 crore was on
account of the recently introduced defined contribution pension
scheme on a retrospective basis from January 2007 to March 2014
• The consequent PAT came in at | 1566.75 crore, up 18.8% YoY but
lower than our estimate of | 1742.9 crore
High quality asset with large reserve base
NMDC has a large reserve base with high grade deposits and significant
mine life. As on January 1, 2010, as per JORC, the total iron ore reserve
and resource base stands at 1360.7 million tonnes (MT). At the current
production run rate, the company has a mine life of ~42 years (reserves:
production - 42). A higher mine life coupled with superior quality deposit
provides strong earnings visibility.
Healthy growth in sales volume to sustain
NMDC has undertaken a capacity addition programme wherein it is on
track to increase its iron ore mining capacity. The company has also been
working on the plan to augment its excavation capacity by increasing the
rake loading capacity and is also mulling over a dedicated slurry pipeline
with its major customers, which will provide further fillip to increase sales
volumes. For H1FY15, NMDC reported a sales volume of 15.9 MT (up
15.3% YoY). We have modelled sales volume of 33 MT for FY15E and 37
MT for FY16E (30.5 MT for FY14).
Low cost of production ensures healthy margins & steady cash flow
Concentration of majority output at two mining complexes (Kirandul and
Bacheli accounted for ~70% of total production volume in FY14). High
level of mechanisation and access to an inexpensive labour force will aid
NMDC to keep its costs in check. As a result, NMDC’s cost of production
at ~US$20/tonne (including royalty) is one of the lowest globally
compared to its global peers.
On strong footing; maintain BUY
On account of subdued volumes for Q2FY15 coupled with the price cut
announced in iron ore lumps, we have downward revised our sales
volume and realisation estimates. We have modelled sales volume of 33
MT for FY15E (34.2 MT earlier) and 37 MT for FY16E (38 MT earlier) and
blended iron ore realisation of | 4090/tonne for FY15E (| 4158/tonne
earlier) and | 4081/tonne for FY16E (| 4154/tonne earlier). We have valued
the company at 6.5x FY16E EV/EBITDA and arrived at a target price of
| 225. We maintain our BUY recommendation on the stock. Superior
quality iron ore reserves, low cost of operations and dominance in the
domestic market reinforce our positive stance on NMDC.

LINK
http://content.icicidirect.com/mailimages/IDirect_NMDC_Q2FY15.pdf