Prabhudas Lilladher's research report on NMDC
NMDC reported Q2FY22 EBITDA below our estimates by 6% while above consensus estimates by 9%. Miss was largely due to higher than expected costs. Global iron ore prices witnessed steep decline of ~50% in last six months due to steel output cuts in China. We believe that domestic iron ore prices would decline by 10-15% due to weakness in global iron ore prices and contraction in steel mill’s margins with sharp increase in coking coal cost. However, domestic iron ore supplies would remain uncertain due to surrender of auctioned mines and low visibility on production by state PSUs in Odisha. In spite of weakness in global iron ore prices, we maintain our Accumulate rating on back of attractive valuations, constrained domestic supplies and value unlocking on demerger of steel plant.
Outlook
We retain our TP of Rs170 based on 1) EV/EBITDA of 4.5x FY23e for iron ore operations and 2) EV/T of US$600 for 3mtpa steel plant.
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