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You are here : IndiaNotes >> Research & Analysis >> Companies >> NMDC Ltd. >> Research

NMDC: Iron ore pricing improving; Upside of nearly 50%

Motilal Oswal | 08 Dec, 2017  | Follow Author | Add to my Favourites 
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We expect iron ore volumes CAGR of 5-6% over the next 4-5 years from the existing mines (Exhibit 6). Steel plant is likely to produce about 1mt in FY21 and full 3mt in FY22. Margins in the steel business are likely to be 10,000/t, as it has many advantages. Despite factoring in 10% lower iron ore margins w.r.t. FY18, we expect EBITDA CAGR of 17% to INR97b over FY17-22. We expect equity value CAGR of 15% to INR 223 in four years, while the dividend yield will be ~5% at CMP.

Thus, we expect a 20% annual total stock return over the next 3-4 years. The stock is trading at attractive valuations of EV/EBITDA of 6.1x, P/E of 9.7x and P/BV of 1.7xFY18E. Return ratios are attractive at 15-16% RoE/RoCE, despite the drag of large CWIP on balance sheet. Valuations are ignoring value of the steel plant. Reiterating Buy

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146.20 +2.35
146.40 +2.60
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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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