NMDC-NMDC a market performer; target of Rs 242: IIFL

IIFL is bullish on NMDC and has recommended a market performer rating on the stock with a target price of Rs 242 in its September 23, 2011 research report.

“NMDC in its FY11 annual report has highlighted the various initiatives embarked upon to transform itself into a world class eco-friendly mining organization. The company in FY11, recorded its highest ever topline and bottomline on the back of increased offtake from the domestic customers, improved rake supply from railways and high iron ore prices. On account of the various regulatory hurdles and the Maoist activities in Chattisgarh, the company has reduced its FY15 iron ore production target by 20% to 40mn tons. NMDC has been on the lookout for resources globally as domestic capacity expansion has been slower than expected and new mining licenses in the country are hard to come by. We upgrade the stock to Market Performer as valuations appear reasonable after the correction witnessed since April ‘11.”

“SC allowed NMDC to produce 12mtpa from its two mines following a July 29 ban on mining activities in Bellary district in Karnataka due to environmental degradation of the area. Before the ban, the company dispatched ~5mn tons from the two Karnataka mines, as production at Kumarswamy was restrained by a Karnataka High Court order. The company recently managed to ramp up its production from the two mines to 28,000-30,000 tons per day from its earlier production level of 21,000-22,000 tons per day. We upgrade our volume estimate to 30mn tons in FY12 and 34mn tons in FY13, factoring in higher production from Karnataka.”

“We revise iron ore price estimates over the next two years; we expect the iron ore market to remain tight on the back of restricted supplies from India. Chinese steel production too has not cooled off as per our previous expectations. Upside risks to our volume estimate remain high as the company has ramped up its output at the Kumarswany mine in Karnataka over the last one month. After the ~24% correction in the stock over the last six months, the stock is trading at 5.5x FY13 EV/EBIDTA, which is marginally higher than its peers. We believe that NMDC should trade at a premium to its peers considering the high quality reserves and the low cost operations. We are comfortable with the current valuations of the stock and upgrade the stock from Sell to Market Performer rating with a revised 9-month price target of Rs 242,” says IIFL research report.