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Emkay Global
NMDC (Sell)
CMP: ₹85.5
Target: ₹72
NMDC paid ₹980 crore direct tax liability under the Vivad se Vishwas scheme and ₹140 crore service tax liability under the Sabka Vishwas scheme. According to the FY19 annual report, NMDC had won direct tax related matters at ITAT and was not required to make provisions.
Chhattisgarh govt alleged non-payment of storage fee, which NMDC has disputed. The State had also raised a tax demand of ₹1,620 crore under the common cause judgment. NMDC has paid ₹600 crore under protest and has filed a case to recover the same.
Q4FY20 EBITDA stood at ₹1,490 crore (y-o-y/q-o-q: -29 per cent/ -6 per cent), 8 per cent below our estimate, largely due to lower-than-expected ASP. Domestic prices are likely to drop further as recently auctioned mines in Odisha start production. NMDC is unlikely to increase exports.
We cut our FY21/22E volume by 15 per cent/9 per cent and lower our ASP estimates by 10 per cent/4 per cent, resulting in EBITDA reduction of 39 per cent/ 22 per cent for FY21/22E. We cut our target EV/EBITDA multiple to 4x (from 5x) factoring in various disputes settled by NMDC. We downgrade to ‘Sel’l, with a TP of ₹72 (from ₹140).
Key risk: Price hikes by NMDC in the near term.
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