Prabhudas Lilladher recommended accumulate rating on NMDC with a target price of Rs 98 in its research report dated Jun 02, 2020.
Prabhudas Lilladher's research report on NMDC
Global iron ore prices shot up by ~18% in last couple of months due to strong revival in Chinese steel production, low iron ore inventory and supply disruption in Brazil on account of Covid-19 virus spread. Based on our channel checks in Brazil, supplies would remain under pressure for next couple of months due to shortage of labor on sporadic rise in virus spread. This is likely to impact 20mnt of supplies, equivalent to 5% of seaborne trade, in the current quarter. Going forward, recovery in Brazilian supplies would be contingent basis slowing of virus spread.
Outlook
Along with seasonally lean mining activity in Australia due to cyclones, global iron ore prices would sustain at current levels of US$100/t. In the backdrop of strength in global prices and comfort on valuations, we upgrade NMDC to Accumulate with TP of Rs98 (earlier Rs90) based on EV/EBITDA of 5.0x (earlier 4.5x) FY22e.
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