Sanjay Jain

MOSL: NMDC (Buy)-Transitory higher royalty rate drives EBITDA miss; Valuations compelling

NMDC: Transitory higher royalty rate drives EBITDA miss; Valuations compelling; Maintain Buy

(NMDC IN, Mkt Cap USD6.1b, CMP INR137, TP INR215, 55% Upside, Buy)


3QFY18 adj. EBITDA grew 4% QoQ (down 6% YoY) to INR13.3b, below our estimate of INR15.4b on marginally lower realization and higher royalty expenses which is transitory. EBITDA is adjusted for (a) rail line doubling payment of INR453m and (b) expected credit loss of INR762m, which are non-recurring. Adj. PAT grew by 2% QoQ to INR9b (est. 10.6b).

  • Sales declined 3% QoQ (-20% YoY) to 8.1mt due to railway line disruption which has since been resolved. Production grew 19% QoQ (-12% YoY) to 8.6mt.
  • Domestic realization increased 5% QoQ to INR2,967/t (est. INR3,048/t).
  • EBITDA per ton increased INR103/t QoQ to INR1,652/t.

Valuations compelling; Maintain Buy

  • Domestic iron ore miners are re-gaining pricing power amid improving demand and disruption in domestic iron ore supply. NMDC has increased fines and lump prices by ~INR600-700/t QoQ in 4Q. Defaulting miners have paid the penalty and could soon restart production. We are already building in realization to decline by ~INR500/t from 1QFY19 on expectation of improving supply. However domestic demand scenario remains favorable.

NMDC Limited is an India-based company engaged in mining of iron ore. The Company's segments include Iron Ore, and Other minerals & services. It is also engaged in the production and sale of diamond, sponge iron and wind power. Its projects under construction include Bailadila Deposit-11/B, Kumaraswamy Iron Ore Project, 1.2 million tons per annum (MTPA) Pellet Plant at Donimalai, 3.0 million tons per annum (MTPA) Integrated Steel Plant in Chhattisgarh, Panthal Magnesite Project, Screening Plant III at Kirandul Complex, Screening Plant II at Donimalai Complex, doubling of Railway Line between Kirandul and Jagdalpur, Steel Plant at Bellary and Rail Link between Dalli-Rajhara-Rowghat-Jagdalpur Railway Line Project. It proposes to diversify into other commodities, such as steel making raw materials (coking coal, manganese ore nickel); fertilizer raw materials (rock phosphate potash), and thermal coal. It also proposes to invest in raw materials, such as tungsten and rare earth minerals.

Motilal Oswal
Motilal Oswal

​Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance. 

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

Sanjay Jain

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