We retain our ‘overweight’ rating on NMDC Ltd shares with a target price of Rs 162. At 3.9x FY15e EV/Ebitda, valuations remain attractive for NMDC compared with its global peers with dividend yield of 6.9% of FY14, on our estimates. We believe this is unjustified given NMDC’s cost leadership, strong balance sheet and lower sensitivity to global commodity prices.
Its dividend yield remains attractive at 6.9%, on our estimates. Based on our channel checks, we believe NMDC’s iron ore price increases in October 2013 have been well absorbed by customers.
We expect the pricing environment to remain stable for the remainder of FY14 with an upward bias on fines pricing based on the current export-parity levels. Meanwhile, volumes for October 2013 were in line with the expected monthly dispatch rate on our estimates.
The company dispatched 16.1 million tonnes in seven months FY14, implying a dispatch rate of 2.3 million tonnes per month.
This translates into a rate of 2.4 million tonnes per month for the rest of FY14 in the company is to meet our full-year volume estimate of 28.3 million tonnes, which we view as likely given that the H2 is traditionally better than the H1.
NMDC expects a stable pricing regime for the remainder of FY14.