Sell NMDC; target of Rs 72: Emkay Global Financial

Emkay Global Financial's report on NMDC

NMDC paid Rs9.8bn direct tax liability under the Vivad se Vishwas scheme and Rs1.4bn service tax liability under the Sabka Vishwas scheme. As per 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 Rs16.2bn under the common cause judgment. NMDC has paid Rs6bn under protest and has filed a case to recover the same. Q4FY20 EBITDA stood at Rs14.9bn (yoy/qoq: -29%/-6%), 8% below our est., largely due 9% 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.

Outlook

We cut our FY21/22E volume by 15%/9% and lower our ASP estimates by 10%/4%, resulting in EBITDA reduction of 39%/22% for FY21/22E. We cut our target EV/EBITDA multiple to 4x (from 5x) factoring in various disputes settled by NMDC. We downgrade to Sell, with a TP of Rs72 (from Rs140). Key risk: Price hikes by NMDC in the near term.

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