NMDC (NATMIN)

CMP: | 105 Target: | 115 (10%) Target Period: 12 months HOLD

August 16, 2019

In line performance...
NMDC reported broadly in line set of numbers for Q1FY20. The company
reported production volume of 8.4 million tonnes (MT), up 21% YoY. The
company reported iron ore sales volume of 8.7 MT, up 28% YoY (our

Result Update
estimate of 9.1 MT). The company reported realisations of | 3705/tonne (up
5.1% QoQ, 4.8% YoY), better than our expectation of | 3550/tonne. Net
income from operations were at | 3263.7 crore, up 35% YoY but down 10%
QoQ (our estimate of | 3250.6 crore). EBITDA came in at | 1867 crore, up Particulars
31% YoY but down 11% QoQ (our estimate: | 1822.8 crore. EBITDA/tonne Particulars Amount
came in at | 2153/tonne, higher than our estimate of | 2009/tonne. PAT came Market Capitalization (| Crore) 31538 crore
in at | 1179 crore, up 21%YoY but down 19% QoQ (our estimate: | 1220 Total Debt (FY19) (| Crore) | 364 crore
crore). Cash and Investments (| Crore) | 4608 crore
EV (| Crore) | 27278 crore
Restart of Donimalai mines awaiting clearances… 52 week H/L 124 / 86
Equity capital | 306.2 Crore
Recently, the Karnataka High Court ruled in favour of NMDC with regard to
Face value |1
royalty issue in case of Donimalai mine. Earlier, Karnataka had levied 80%
royalty on the Donimalai mine during the time of lease renewal. In this Key Highlights
regard, NMDC had filed a writ petition in the high court against the royalty
 Reported production volume of
of 80% levied by the Karnataka government on average sales value of iron
8.4 MT for Q1FY20, up 21% YoY
ore from the Donimalai mine. The writ petition has been allowed and the
earlier condition to impose premium equivalent to 80% of average sale price  Reported sales volume of 8.7

ICICI Securities – Retail Equity Research

of iron ore has been set aside. This favourable judgement augurs well for MT for Q1FY20, up 28% YoY
NMDC. However, despite a favourable high court order, the company’s
Donimalai mine remains shut pending clearances. The timeline for restart of  Arrived at a target price of | 115,
the Donimalai mine remains uncertain because of the pending clearances. maintaining our HOLD
The change of guard in the state government and recent floods in Karnataka recommendation on the stock.
are primary causes for the delay.

Capex guidance of | 3000 crore for FY20E…

NMDC is planning to incur a capex to the tune of | 3000 crore for FY20E.
Majority of the capex of ~| 2200 crore would be for the steel plant while
balance would be for sustenance and maintenance capex. The management Research Analyst
has indicated that the proposed date for steel plant commissioning has been
Dewang Sanghavi
now shifted to Q1FY21 from Q4FY19 earlier, on account of recent delays.
dewang.sanghavi@icicisecurities.com

Valuation & Outlook

NMDC reported a steady set of numbers for Q1FY20 wherein EBITDA/tonne
came in higher than our estimate on the back of better-than-expected
realisations. Going forward, we model sales volume of 35.5 MT for FY20E
and 37.0 MT for FY21E. Furthermore, we expect EBITDA margins to hover
around 50% levels for the next couple of years. We value the stock on a
SoTP basis thereby arriving at a target price of | 115. We maintain our HOLD
recommendation on the stock.
Key Financial Summary
(| Crore) FY17 FY18 FY19 FY20E FY21E
Net Sales 8,828 11,615 12,153 12,921 10,842
EBITDA 3,601 5,809 6,930 6,442 5,418
EBITDA Margin (%) 40.8 50.0 57.0 49.9 50.0
Adj PAT 2,589 3,806 4,643 4,240 3,571
EPS (|) 8.2 12.0 15.2 13.8 11.7
EV/EBITDA (x) 7.6 4.8 4.1 4.5 5.0
RoCE (%) 15.1 22.3 25.3 20.8 16.2
RoE (%) 11.5 15.6 17.9 14.5 11.4
s

Source: Company, ICICI Direct Research

 Result Update | NMDC ICICI Direct Research

Exhibit 1: Variance Analysis

Q1FY20 Q1FY20E Q1FY19 YoY (%) Q4FY19 QoQ (%) Comments
Total Operating Income 3,263.7 3,251.0 2,422.0 34.8 3,643.3 -10.4 Topline came in broadly in line with our estimates
Other Income 122.8 85.3 125.1 -1.8 196.1 -37.4
Employee Expense 253.1 253.2 236.9 6.9 282.0 -10.2
Raw Material Expense 46.5 50.0 39.5 17.7 83.6 -44.4
Royalty & cess 581.7 600.0 445.6 30.5 501.9 15.9
Selling Expense 190.1 200.0 31.8 497.8 132.9 43.1
Other Expense 325.5 325.0 244.4 33.2 550.7 -40.9
EBITDA 1,866.8 1,822.8 1,423.9 31.1 2,092.3 -10.8 EBITDA broadly came in line with our estimate
EBITDA Margin (%) 57.2 56.1 58.8 -159 bps 57.4 -23 bps EBITDA margin came broadly in line with our estimate

Depreciation 64.8 75.0 61.6 5.2 80.4 -19.4

Interest 11.7 12.0 10.8 9.1 10.2 14.6
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0
PBT 1,913.2 1,821.1 1,476.7 29.6 2,197.8 -12.9
Tax Outgo 733.7 601.0 501.3 46.4 743.8 -1.4
Reported PAT 1,179.4 1,220.1 975.3 20.9 1,453.9 -18.9 PAT came in line with our estimate
Key Metrics
Iron ore sales volume (MT) 8.7 9.1 6.8 27.9 10.2 -14.8 Sales volume came in marginally lower than estimate

Iron ore blended

3,705 3,550 3,536 4.8 3,525 5.1 Realisations came in higher than our estimate
realisations
EBITDA/tonne 2,153 2,009 2,101 2.5 2,058 4.7 EBITDA/tonne came in higher than our estimate
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

Conference Call highlights

 The management has chalked out capex plan of | 3000 crore for
FY20E (of which ~| 2200 crore would be spent on the steel plant)
 Export volume for Q1FY20 was at ~6 lakh tonnes, compared to nil
during Q1FY19 and ~5.19 lakh tonnes in Q4FY19
 The management has guided for volume of ~32 MT for FY20 and
additional volume from Donimalai at the run rate of 0.5 MT per
month of operation, post the restart
 JSW Steel, Essar Steel and Vizag Steel bought 6.82 MT, 6.54 MT and
8.42 MT of iron ore, respectively from NMDC during FY19,
representing ~67% of FY19 aggregate sales volume
 The current cash and cash equivalent balance on the books is at
~| 4500 crore
 With respect to the steel plant delay, the company is facing issues
on two packages, viz a) raw material handling plant and b) by-
product processing plant. While the company had recently
terminated its contracts with Bhel, it is revaluating the same given
the change of management at Bhel and revised requests from the
company (Bhel) for the same
 The proposed steel plant would have iron ore requirement of ~4.5
MT, which will be catered from existing mines by setting up an
additional screen plant
 The capex for the proposed steel plant has been increased to
~| 22300 crore. On a like to like basis the steel plant capex has been
increased from | 15300 crore to ~| 18300 crore while the balance
| 4000 crore would be spent for housing colony, etc

ICICI Securities | Retail Research 3

 Result Update | NMDC ICICI Direct Research

Financial story in charts

Exhibit 2: Trend in production and sales volumes

40.0
35.0
30.0
25.0
million tonne

20.0

37.4
37.0
36.1
35.6

35.6
35.6

35.5
34.0

32.4
32.4
15.0
28.8
28.6

10.0
5.0
0.0
FY16 FY17 FY18 FY19 FY20E FY21E

Iron ore production Iron ore total sales

Source: Company, ICICI Direct Research

Exhibit 3: Trend in EBITDA/tonne margins level

2500
2101
2000 1813
1610
1464 We model EBITDA/tonne of | 1813/tonne for FY20E
1500
|/tonne

and | 1464/tonne for FY21E

1011
1000

500

0
FY17 FY18 FY19 FY20E FY21E
Source: Company, ICICI Direct Research

Exhibit 4: Trend in EBITDA margin (in %)

60.0
57.0

55.0
Over the next couple of years, we expect EBITDA
50.0 49.9 50.0 margin to hover at ~50%
50.0

45.0
(%)

40.8
40.0

35.0

30.0
FY17 FY18 FY19 FY20E FY21E
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

Exhibit 5: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY17 8,828.1 36.7 8.2 7.1 12.6 7.6 11.5 15.1
FY18 11,614.9 31.6 12.0 47.0 8.6 4.8 15.6 22.3
FY19 12,152.7 4.6 15.2 26.0 6.8 4.1 17.9 25.3
FY20E 12,921.3 6.3 13.8 -8.7 7.4 4.5 14.5 20.8
FY21E 10842.4 -16.1 11.7 -15.8 8.8 5.0 11.4 16.2
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

Exhibit 6: Recommendation History vs. Consensus

180 100.0

160 90.0
80.0
140
70.0
120 60.0
(|)

100 50.0

(%)
80 40.0
30.0
60
20.0
40 10.0
20 0.0
Oct-16

Oct-17

Nov-18
Nov-16

Mar-18

Mar-19

May-19
Sep-17

Sep-18
Jan-17
Aug-16

Apr-17

Jun-17

Jul-17

Dec-17

Jan-18

Jun-18

Jul-18

Dec-18

Jun-19
Feb-17

Apr-18

Feb-19

Aug-19
Price Idirect target Consensus Target Mean % Consensus with Buy

Source: Bloomberg, Company, ICICI Direct Research

Exhibit 7: Top 10 Shareholders

Latest Filing
Rank Investor Name % O/S Position (M) Change (M)
Date
1 Government of India 30-06-2019 72.28 2213.0 0.0

2 Life Insurance Corporation of India 30-06-2019 12.89 394.6 0.0

LIC Mutual Fund Asset

3 31-03-2019 2.03 62.3 -4.9
Management Company Ltd.
4 Aditya Birla Sun Life AMC Limited 30-06-2019 1.15 35.2 0.1

5 The Vanguard Group, Inc. 30-06-2019 0.90 27.4 0.0

Kotak Mahindra Asset
6 30-06-2019 0.31 9.5 1.3
Management Company Ltd.
FIL Investment Management
7 31-03-2019 0.18 5.6 5.6
(Singapore) Ltd.
Reliance Nippon Life Asset
8 30-06-2019 0.16 5.0 -0.3
Management Limited
9 SEB Investment Management AB 30-04-2019 0.16 4.9 0.2

10 Mellon Investments Corporation 30-06-2019 0.13 3.8 0.0

Source: Reuters, ICICI Direct Research

Exhibit 8: Recent Activity

Buys Sells
Investor Name Value (M) Shares (M) Investor Name Value (M) Shares (M)
LIC Mutual Fund Asset Management Company
FIL Investment Management (Singapore) Ltd. 8.4 5.6 -7.4 -4.9
Ltd.
SBI Funds Management Pvt. Ltd. 2.5 1.5 T. Rowe Price Associates, Inc. -5.8 -3.5

Kotak Mahindra Asset Management Company Ltd. 2.1 1.3 CPP Investment Board -2.3 -1.5

IDFC Asset Management Company Private Limited 1.6 1.0 Grantham Mayo Van Otterloo & Co LLC -2.1 -1.4

Franklin Templeton Asset Management (India)

Robeco Institutional Asset Management B.V. 1.1 0.8 -0.7 -0.5
Pvt. Ltd.
Source: Reuters, ICICI Direct Research

Exhibit 9: Shareholding Pattern

(in %) Dec-18 Mar-19 Jun-19
Promoter 72.28 72.28 72.28
Others 27.72 27.72 27.72
Total 100.00 100.00 100.00
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

Financial summary

Exhibit 10: Profit and loss statement | crore Exhibit 11: Cash flow statement | crore
(Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E
Operating Income (Iron ore) 11614.9 12152.7 12921.3 10842.4 Profit after Tax 3,806.3 4,642.5 4,240.0 3,571.1
Other minerals and services 0.0 0.0 0.0 0.0 Add: Depreciation 256.0 278.9 290.5 315.5
Total Operating Income 11614.9 12152.7 12921.3 10842.4 (Inc)/dec in Current Assets -905.5 -332.0 -872.0 1,288.9
Growth (%) 31.6 4.6 6.3 -16.1 Inc/(dec) in CL and Provisions 469.6 -361.6 435.8 -501.2
Total Operating Expenditure 5,806.1 5,222.7 6,479.1 5,424.4 Others 0.0 0.0 0.0 -101.0
EBITDA 5808.8 6930.0 6442.2 5418.0 CF from operating activities 3,626.4 4,227.8 4,094.2 4,573.3
Growth (%) 61.3 19.3 -7.0 -15.9 (Inc)/dec in Investments -59.5 -152.8 -100.0 -101.0
Depreciation 256.0 278.9 290.5 315.5 (Inc)/dec in Fixed Assets -1,663.5 -1,600.4 -3,660.5 -2,380.0
Interest 37.1 40.3 44.0 48.0 Others -282.8 -124.4 -50.0 0.0
Other Income 519.7 588.3 517.3 522.5 CF from investing activities -2,005.7 -1,877.6 -3,810.5 -2,481.0
PBT 6,035.4 7,199.1 6,625.0 5,576.9 Issue/(Buy back) of Equity 0.0 -10.2 0.0 0.0
Exceptional Item -144.3 0.0 0.0 0.0 Inc/(dec) in loan funds 500.1 -135.9 -100.0 -100.0
Total Tax 2,373.3 2,556.5 2,385.0 2,005.8 Dividend paid & dividend tax -1,591.8 -2,043.4 -2,961.4 -3,045.1
PAT 3,806.3 4,642.5 4,240.0 3,571.1 Inc/(dec) in Share Cap -380.2 -991.2 2,037.8 1,475.0
Growth (%) 47.0 22.0 -8.7 -15.8 Others 0.0 0.0 0.0 50.0
EPS (|) 12.0 15.2 13.8 11.7 CF from financing activities -1,471.8 -3,180.7 -1,023.6 -1,620.1
Source: Company, ICICI Direct Research Net Cash flow 148.9 -830.5 -739.9 472.2
Opening Cash 5,289.3 5,438.2 4,607.7 3,867.8
Closing Cash 5,438.2 4,607.7 3,867.8 4,340.0

Source: Company, ICICI Direct Research

Exhibit 12: Balance sheet | crore Exhibit 13: Key ratios | crore
(Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E
Liabilities Per share data (|)
Equity Capital 316.4 306.2 306.2 306.2 EPS 12.0 15.2 13.8 11.7
Reserve and Surplus 24,037.4 25,645.4 28,961.7 30,962.7 Cash EPS 12.8 15.6 14.3 12.3
Total Shareholders funds 24,353.8 25,951.6 29,267.9 31,268.9 BV 77.0 82.0 92.5 98.8
Total Debt 500.1 364.2 264.2 164.2 DPS 4.3 5.5 8.0 8.5
Deferred Tax Liability 0.0 0.0 0.0 0.0 Cash Per Share (Incl Invst) 19.7 17.5 15.5 17.3
Others 714.1 786.8 836.8 886.8 Operating Ratios (%)
Total Liabilities 25,568.0 27,102.5 30,368.8 32,319.8 EBITDA Margin 50.0 57.0 49.9 50.0
PBT / Total Op. income 52.0 59.2 51.3 51.4
Assets PAT Margin 32.8 38.2 32.8 32.9
Gross Block 4,982.2 5,310.0 5,810.0 6,310.0 Inventory days 18.0 20.0 25.0 25.0
Less: Acc Depreciation 2,310.5 2,589.4 2,899.4 3,214.9 Debtor days 46.3 42.8 48.0 48.0
Net Block 2,671.7 2,720.7 2,910.7 3,095.2 Creditor days 5.0 6.1 8.0 8.0
Capital WIP 12,519.9 13,792.4 16,972.4 18,852.4 Return Ratios (%)
Total Fixed Assets 15,191.6 16,513.1 19,883.1 21,947.6 RoE 15.6 17.9 14.5 11.4
Investments 786.5 939.3 1,039.3 1,140.3 RoCE 22.3 25.3 20.8 16.2
Inventory 571.7 666.2 885.0 742.6 RoIC 29.8 32.0 25.0 19.7
Debtors 1,472.7 1,424.5 1,699.2 1,425.8 Valuation Ratios (x)
Loans and Advances 3,405.9 3,782.8 3,876.4 3,252.7 P/E 8.6 6.8 7.4 8.8
Other Current Assets 1,356.8 1,265.6 1,550.6 1,301.1 EV / EBITDA 4.8 4.1 4.5 5.0
Cash 5,438.2 4,607.7 3,867.8 4,340.0 EV / Net Sales 2.4 2.3 2.2 2.5
Total Current Assets 12,245.3 11,746.8 11,879.0 11,062.3 Market Cap / Sales 2.8 2.7 2.5 2.9
Current Liabilities 159.5 202.7 283.2 237.6 Price to Book Value 1.3 1.3 1.1 1.0
Provisions 2,881.5 2,476.8 2,832.1 2,376.4 Solvency Ratios
Current Liabilities & Prov 3,041.1 2,679.5 3,115.3 2,614.1 Debt/EBITDA 0.1 0.1 0.0 0.0
Net Current Assets 9,204.2 9,067.3 8,763.7 8,448.2 Debt / Equity 0.0 0.0 0.0 0.0
Others Assets 385.7 582.7 682.7 783.7 Current Ratio 4.0 4.4 3.8 4.2
Application of Funds 25,568.0 27,102.5 30,368.8 32,319.8 Quick Ratio 3.8 4.1 3.5 3.9
Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

Exhibit 14: ICICI Direct coverage universe (Metals and Mining)

CMP TP M Cap EPS (|) P/E (x) EV/EBITDA (x) ROCE(%) ROE(%)
(|) (|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
Coal India 206 225 Hold 127872 28.3 28.9 29.9 7.3 7.1 6.9 4.3 5.2 5.0 86.4 67.7 61.4 66.2 54.6 48.3
Hindalco 176 185 Hold 39195 24.7 18.4 21.3 7.1 9.6 8.3 4.8 5.6 5.1 10.3 8.3 8.8 9.6 6.6 7.1
Hind Zinc 208 275 Hold 87880 18.8 19.0 21.6 11.0 11.0 9.6 7.4 6.6 5.2 29.2 27.0 26.6 23.7 20.5 20.2
JSW Steel 212 224 Reduce 50880 31.5 16.2 20.4 6.7 13.0 10.4 5.5 7.9 7.3 17.6 11.1 11.9 21.7 12.1 13.7
NMDC 103 115 Hold 31538 15.2 13.8 11.7 6.8 7.4 8.8 4.1 4.5 5.0 25.3 20.8 16.2 17.9 14.5 11.4
Vedanta 137 150 Hold 50786 18.1 21.4 26.0 7.6 6.4 5.3 4.0 3.6 3.0 11.9 13.1 15.0 10.8 11.8 13.1
Tata Steel 363 350 Hold 41564 78.6 33.5 46.6 4.5 10.5 7.5 4.8 6.5 5.7 13.4 8.5 9.7 13.0 6.1 7.8
Source: Company, ICICI Direct Research

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 Result Update | NMDC ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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 Result Update | NMDC ICICI Direct Research

ANALYST CERTIFICATION
I/We, Dewang Sanghavi MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s)
or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report
have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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ICICI Securities | Retail Research 10