Stock Market Flash on NMDC Ltd for 4QFY2011 with a Neutral Recommendation

Stock Market Flash on NMDC Ltd for 4QFY2011 with a Neutral Recommendation.

·         NMDC reported robust numbers for 4QFY2011 today. While net sales increased 90.1% yoy to Rs3,770cr, above our estimate of Rs2,914cr on account of higher-than-expected sales volumes. Net sales growth was driven by increases in both, sales volumes (+23.5% yoy to 8.4mn tonnes) and iron ore realisations (+54.2% yoy to Rs4,470 per tonne).

·         Selling expenses (including freight) increased 222.4% yoy to Rs400cr due to increase in railway freight and export duty on iron ore. Royalty & cess expenses increased 154.2% yoy to Rs334cr on account of increase in royalty rates. Both these expenses were higher than our estimates.

·         EBITDA increased 98.6% yoy to Rs2,739cr, while EBITDA margin expanded 320bp yoy in 4QFY2011. The improvement in margin was mainly on account of steep rise in iron ore prices, partially offset by increase in selling and royalty costs.

·         Other income increased 80.5% yoy to Rs443cr in 4QFY2011. Consequently, net profit increased 96.9% yoy to Rs2,099cr in 4QFY2011, slightly above our estimate of Rs2,039cr.

4QFY2011results snapshot

Y/E March (Rs cr)	4QFY11	4QFY10	yoy %	FY11	FY10	yoy %
Net Sales	3,770	1,983	90.1	11,369	6,239	82.2
Raw Material	(36)	12	(388.1)	(90)	2	(4,836.3)
% of net sales	(1.0)	0.6		(0.8)	0.0
Consumption of stores & spares	74	71	5.3	213	209	1.7
% of net sales	2.0	3.6		1.9	3.4
Staff Cost	147	149	(1.1)	492	420	17.4
% of net sales	3.9	7.5		4.3	6.7
Other Expenditure	845	372	127.0	2,107	1,186	77.7
% of net sales	22.4	18.8		18.5	19.0
Total Expenditure	1,031	604	70.6	2,722	1,817	49.8
% of net sales	27.3	30.5		23.9	29.1
Operating Profit	2,739	1,379	98.6	8,646	4,422	95.5
OPM%	72.7	69.5		76.1	70.9
Other Operating Income	0	0		0	0
EBIDTA	2,739	1,379	98.6	8,646	4,422	95.5
EBITDA margins (%)	72.7	69.5		76.1	70.9
Interest	0	0		0	0
Depreciation	42	25	65.8	125	77	63.1
Other Income	443	246	80.5	1,206	862	39.9
Exceptional Items	0	0		0	0
Profit before Tax	3,140	1,599	96.3	9,727	5,207	86.8
% of net sales	83.3	80.6		85.6	83.5
Tax	1,042	534	95.1	3,228	1,760	83.4
% of PBT	33.2	33.4		33.2	33.8
Net profit	2,099	1,066	96.9	6,499	3,447	88.5

4QFY2011- Actual vs Estimates

(Rs cr)	Actual	Estimates	Variation (%)
Net Sales	3,770	2,914	29.4
EBITDA	2,739	2,541	7.8
EBITDA margins (%)	72.7	87.2	-1454bp
PAT	2,099	2,039	2.9

Outlook

NMDC’s 4QFY2011 net sales was above our estimate, however, margins were below our estimates on account of higher-than-expected increase in selling and royalty costs. Prices of iron ore have declined slightly in the domestic market in the last two months. During May2011, NMDC had announced that it will cut iron ore prices by ~15%. Also, NMDC’s volume growth remains at risk on account of Naxals activity in some of its mines. We will lower our margin estimates for FY2012 and FY2013 in light of higher-than-expected selling costs reported in 4QFY2011. The stock is currently trading at a 6.6x FY2012E and 5.3x FY2013E EV/ EBITDA. We maintain Neutral rating on the stock.

Financial Summary

Y/E March (Rs cr)	FY2009	FY2010	FY2011E	FY2012E	FY2013E
Net Sales	7,564	6,239	11,369	13,952	16,045
% chg	32.4	(17.5)	82.2	22.7	15.0
Net Profit	4,372	3,451	6,499	8,919	10,167
% chg	34.5	(21.1)	88.3	37.2	14.0
FDEPS (Rs)	11.0	8.7	16.4	22.5	25.6
OPM(%)	77.2	70.9	76.1	86.6	85.8
P/E (x)	23.4	29.6	15.7	11.5	10.1
P/BV (x)	8.8	7.2	5.3	3.9	3.0
RoE (%)	43.9	26.6	38.8	39.2	33.4
RoCE (%)	57.7	33.4	50.6	52.1	44.4
EV/Sales (x)	12.2	14.3	7.6	5.7	4.5
EV/EBITDA (x)	15.9	20.2	9.9	6.6	5.3