By | September 18, 2017

1QFY18 adj. EBITDA grew 98% YoY (+13% QoQ) to INR16.2b, exceeding the estimate by 7%, due to higher regional and mix premiums. EBITDA is adjusted for (a) rail line doubling payment of INR411m and (b) expected credit loss of INR815m, which are non-recurring. Adj. PAT grew 72% YoY (+23% QoQ) to INR11.4b.

* Sales increased 18% YoY to 9.2mt, while production grew 12% YoY to 8.5mt. Share in exports increased 110bp QoQ to 8%.

* Domestic sales realization increased INR67/t QoQ to INR2,938/t, surprising positively (est. of INR2,726), due to a higher share of Karnataka volumes at 37% (+348bp QoQ) and higher product and regional premiums. Exports NSR increased 32% QoQ to USD76/t (est. of USD60).

* EBITDA per ton rose INR302 QoQ to INR1,765/t on higher realization and normalization of employee cost.

Pricing power improving; valuations compelling; Reiterate Buy

* NMDC’s iron ore has now become very competitive after a price cut in July. Preliminary data suggest volumes growth has picked up in July. Improving iron ore prices in the seaborne trade have better pricing power. NMDC can supply 20% more volumes without additional CapEx. We expect 6% volume CAGR over FY17-20E.

* At CMP, adjusting for CWIP, the valuations at 3.5x FY19E EV/EBITDA are compelling. NMDC has appointed bankers for the sale of its steel plant. We thus believe that CWIP deserves at least book value. We value the stock at INR180/share (59% upside), based on 6.5x EV/EBITDA FY19E and book value for CWIP. Reiterate Buy.

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