Kotak Securities

NMDC (Sell)

CMP: ₹154.8

Target: ₹130

NMDC followed various merchant miners of Odisha, who recently took the advantage of supply disruptions (closed on account of non-payment of levies) in the States and hiked the iron ore prices. NMDC has taken two consecutive price hikes for domestic iron ore prices adding up to ₹700 and ₹800 a tonne for lump ore and iron ore fines, respectively in the months of December 2017 and January 2018 which would reflect in 4QFY18.

We believe that the recent hike in the iron ore prices in the domestic market is temporary and the company will have to roll back the same, once the miners resume supplies upon payment of the levy. We continue to maintain our cautious outlook for iron ore and also on NMDC due to subdued global prices, upcoming auctioned of merchant mines by the government and increase in mining cap in Karnataka can weigh pressure on domestic iron ore prices. At current valuation of 9.0x/8.8x FY18E/FY19E EV/EBITDA, the stock is highly valued.

Upside risks: The government has begun the process of strategic sale of assets in public sector undertakings. For NMDC, the Cabinet Committee on Economic Affairs (CCEA) had approved the divestment of the Nagarnar steel plant. Any development on the same would augur well for NMDC.

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