Oct 26, 2012

NMDC - Price 179 - Target 230

NMDC is India's largest iron-ore producer with ~30mn tonnes of annual extraction capacity and rich iron-ore reserves & resources of ~1.36 bn tonnes. It has 3 fully operating mines located in Chhattisgarh and Karnataka, having a total proved reserve of around 800mn tonnes. Debt free mining company sitting on huge cash Rupees 207.25 Billion will provide leverage to explore and develop new mines both India and globally.

Investment Arguments

  • ~NMDC - One of the Best Players in Mining
  • ~Quality resources in kitty
  • ~High margin backed by low cost of production
  • ~Diversifying Product Portfolio
  • ~Huge Cash in Balance sheet will help company to grow inorganically
  • ~Valuation
  • ~Concerns

Company Description

NMDC Limited engages in the exploration and production of various minerals in India and internationally.

It explores for iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. The company also focuses on coal and gold properties, as well as platinum group of elements and bauxite.

It has interests in Bailadila iron ore deposits in Chhattisgarh, as well as Donimalai iron ore mines in Karnataka; diamond mine in Panna, Madhya Pradesh; magnesite mine in Jammu; and Arki lime stone project in Himachal Pradesh.

In addition, the company involves in developing a steel plant at Jagdalpur, as well as pellet plants in Donimalai and Bacheli; and invests in the development of renewable energy resources, which include a wind mill project of approximately 10.5MW capacity in Karnataka.

It was formerly known as National Mineral Development Corp.Ltd., and changed its name to NMDC Limited in January, 2008. 


With strong domestic demand, we expect NMDC's volumes to grow at 6-8% CAGR during F11-F14e. On EV/EBITDA, it trades at 5x F13e and 4.8x F14e and EV/Sales, it trades at 3.8x FY13e and 3.6x FY14e. We feel at the current valuation, the stock is undervalued with its peers and the company should command a premium, given its cost, high ROE, debt free, market leadership in the domestic iron-ore space, huge cash balance and high margins. We assign the price target of Rs. 230 based on relative valuation in next 12-15 months.       

NMDC (Rs 161.1): NMDC is fluctuating in a very wide band between Rs 120 and Rs 500 since 2008. The stock retreated from the upper end of this band in January 2010 and it is currently drawing close to the lower end. The zone between Rs 140 and Rs 150 is a potential area from which a rebound can take place.

Investors can, therefore, buy the stock in this area with stop at Rs 130. Next support on the chart is at Rs 120. We do not recommend purchases below this level since it then becomes hard to infer where the next halt can be.

Near-term resistances are at Rs 210 and Rs 246. Key medium-term hurdle will be at Rs 300. Inability to move beyond this peak will result in the stock fluctuating between Rs 120 and Rs 300 over the upcoming months.