NMDC: Strong growth momentum continues

Despite softer global ore prices, strong demand and increasing volumes drive performance

NMDC’s performance continues to be driven by volumes. The increasing iron-ore demand as well as on-going capacity expansions bode well for NMDC’s growth and realisations, enabling it post strong operational performance. In this backdrop, NMDC’s June quarter performance has also come in better than the Street expectations.

While revenues at Rs 3,475 crore were up 21 per cent year-on-year, these were also ahead of consensus analysts’ estimates of Rs 3,451 crore as per Bloomberg. But, what’s more interesting is the 26 per cent growth in Ebitda. This not only outpaced sales growth but led to Ebitda of Rs 2,402 crore, much higher than consensus estimate of Rs 2,283 crore. The net profit at Rs 1,915 crore, too, was way ahead of estimates of Rs 1,817 crore and was up 22 per cent y-o-y.

For the June quarter, NMDC’s production increased 13.5 per cent year-on-year, while sales volumes recorded a higher growth of 16.7 per cent. Despite significant correction in global iron-ore prices, the company continues to see stable realisations. In fact, for the month of June, NMDC had raised the per tonne iron-ore lumps and fines prices to about Rs 4,600 and Rs 3,160 compared to Rs 4,300 and Rs 2,910 in May and Rs 4,500 and Rs 2,910 in April, respectively. The prices during the June’13 quarter had been at Rs 4,600 and Rs 2,610 a tonne levels.

Notably, the strong volume growth momentum continues in July too. For April to July 2014 period, the sales at 11.11 mt grew in excess of 18 per cent, compared to the year ago period. NMDC continued with the strong July prices in August as well. The fact that the domestic prices are 15-30 per cent lower than global prices provide comfort, and downside support to NMDC.

For FY15, thus, analysts expect NMDC to clock sales volumes of around 34 mt  compared to 30.6 mt in FY14 and estimate volumes to cross 40 MT levels in FY17. Thus, the momentum in NMDC’s sales and profitability growth is likely to continue even as there could be some correction in realisations. However, analysts at Motilal Oswal Securities say they expect insignificant impact of decline in realisations on margins.

In the long run, the prospects of the company are likely to strengthen further, given that its planned steel plant is likely to go on stream by FY17 end. The current cash of more than Rs 20,000 crore in the books, coupled with strong annual cash flow from operations, suggests that the company’s balance sheet will remain robust despite the planned capital expenditure on the new steel plant. NMDC also has a history of strong dividend pay-outs. Hence, it is not surprising that despite the strong run up on the bourses — almost 38 per cent in last five months —analysts still believe there is room for further gains.