NMDC Expected to be Boosted by More Earnings Forecast
Time:Wed, 19 Mar 2014 01:35:05 +0800
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Macquarie Group, an investment banking company, said that we reiterate our outperform rating on NMDC and raise our target price to INR 188 per share, valuing the share at 10x September 2016e. At 7x P/E, 3.4x EV/ebitda at 8% dividend yield on FY15e, we believe NMDC is looking cheaper than most peers.
NMDC clocked all time record sales in February 14th up 32% YoY, with volumes up 17% YoY in eleven months of FY14. Restart of the slurry pipeline and commissioning of a new mining capacity should drive a 12% volume CAGR over FY13-16e. Further, we note a strong pricing outlook as domestic iron ore balance moves in favour of miners.
After 6 years of stagnant volumes, NMDC has surprised all estimates with 17% YoY volume growth in eleven months of FY14e and 32% YoY growth in February 2014. NMDC is increasing its mining capacity from 34 million tonne per annum to 48 million tonne per annum by FY16.
Of this, a 7 million tonnes per annum mine is ready for commissioning in FY15 and NMDC has 2 million tonnes of iron ore inventory. We raise our sales volume forecast 6% to 7% to 34 million tonnes and 37 million tonnes for FY15-16e but still think risks are to the upside. A 1 million tonnes rise in volume impacts EPS by 3%.
Within 2 months of restarting, the 8 million tonnes per annum slurry pipeline has seen impressive ramp-up to run rate of 7.3 million tonnes per annum. NMDC can easily beat our consensus volume estimate of 37 million tonnes in FY16. Despite a 20% fall in global iron ore prices, Indian prices are up 8% in the last 4 months.
