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NMDC’s September quarter performance, though weaker over a year ago, came on the higher end of Street estimates. While analysts estimated revenues in the range of Rs 2,200-2,500 crore, NMDC clocked in Rs 2,478 crore. Though this marked a decline of 5.1 per cent year-on-year and 13.6 per cent sequentially, it was due to weak realisations as the demand environment for iron ore was not conducive on subdued steel demand. Consequently, NMDC saw its stock dip to its multi-year low of Rs 92.65 on 6th August.
For the quarter, blended iron-ore realisations (at Rs 3,800 a tonne) came 14-15 per cent lower on year-on-year basis and three per cent sequentially. Thus, despite volumes in the quarter (13.75 million tonnes or mt) increasing 8.1 per cent year-on-year, revenues and operating performance took a hit. Earnings before interest depreciation taxes and amortisation (Ebitda) at Rs 1,494 crore came lower than a year ago’s Rs 1,935 crore, and June quarter’s Rs 1,905 crore. Margins at 60.3 per cent were also lower than 74.1 per cent in the September 2012 quarter and 66.4 per cent in the June 2013 quarter. While the net profit at Rs 1,318 crore was down 21.5 per cent year-on-year and 16.2 per cent sequentially, again, it was on the higher end of analyst estimates of Rs 1,200-1,350 crore.
The prospects look better as iron-ore prices are improving and NMDC is also ramping up its volumes. Given the huge cash balance, valuations are also attractive.
Improving realisations
NMDC, on October 11, took price rises of Rs 100 a tonne for lumps and fines, led by a rebound in the international iron ore and steel prices. The Indian steel millers in September had taken price rises of Rs 1,500-2,000 a tonne. With an uptick in the steel prices, the iron-ore prices have been boosted and excess inventories in Orissa also stand liquidated. The liquidation of excess iron-ore inventory during the first half of FY14 was done by Orissa iron-ore miners, and consequently it had been contributing to weak iron-ore prices. However, they also have undertaken price rises of Rs 300-500 a tonne. All these factors helped NMDC to decide on recent price rises of its produce. Before the price rises, analysts at Anand Rathi Institutional equities had observed ore prices had bottomed out. The outlook has improved with currency depreciation, probable export duty reduction and global appreciation in steel/ ore prices. Abhisar Jain at Centrum Broking sees another round of rises coming over the next five months.
Volumes rising
On production, the company had done slightly over 26 mt in FY13. It is likely to produce 30 mt of ore in FY14. NMDC plans raising its capacity to 48 mt by FY15, helped by both existing and new mines, in Karnataka and Chhattisgarh.
In the first half of FY14, NMDC has sold 13.75 mt of ore, of which 4.42 mt was from Karnataka and 9.33 mt from Chhattisgarh (Bailadila mine). The Karnataka mines, that had been ramped up to six mtpa (million tonnes per annum) annual capacity in FY13 are now producing close to a run-rate of nine mtpa. Giriraj Daga at Nirmal Bang observes that NMDC has 25 mt reserves at Donimalai mine. Nevertheless, the company believes it can add 80-90 mt through organic exploration and has also given a revised mining plan to the Indian Bureau of Mines for its approval. After approval, NMDC would have five mt production limit for the Donimalai mine and it expects five-mt production from the Kumaraswamy mine, which will mean the production run-rate would increase to 10 mtpa from Karnataka mines. For FY14, the company is likely to meet its 30 mt off-take targets and availability of railway rakes (wagons) will provide support.
Upgrades likely
Against this backdrop of increasing production, analysts have upgraded their production target for FY14 and FY15. Daga at Nirmal Bang has increased his FY14 and FY15 production targets by 7.2 per cent and 6.8 per cent to 30 mt and 32 mt, respectively. Analysts, after the price rises, had upgraded their target price to Rs 158-165 for the stock trading at Rs 140 levels, and are now reviewing this for possible upgrades.
