NMDC reported robust numbers for 4QFY2011 today. While net sales increased 90.1% yoy to Rs3,770cr, above our estimate of Rs2,914cr on account of higher-than-expected sales volumes. Net sales growth was driven by increases in both, sales volumes (+23.5% yoy to 8.4mn tonnes) and iron ore realisations (+54.2% yoy to Rs4,470 per tonne).
Selling expenses (including freight) increased 222.4% yoy to Rs400cr due to increase in railway freight and export duty on iron ore. Royalty & cess expenses increased 154.2% yoy to Rs334cr on account of increase in royalty rates. Both these expenses were higher than our estimates.
EBITDA increased 98.6% yoy to Rs2,739cr, while EBITDA margin expanded 320bp yoy in 4QFY2011. The improvement in margin was mainly on account of steep rise in iron ore prices, partially offset by increase in selling and royalty costs.
Other income increased 80.5% yoy to Rs443cr in 4QFY2011. Consequently, net profit increased 96.9% yoy to Rs2,099cr in 4QFY2011, slightly above our estimate of Rs2,039cr.
4QFY2011results snapshot
| Y/E March (Rs cr) | 4QFY11 | 4QFY10 | yoy % | FY11 | FY10 | yoy % |
| Net Sales | 3,770 | 1,983 | 90.1 | 11,369 | 6,239 | 82.2 |
| Raw Material | (36) | 12 | (388.1) | (90) | 2 | (4,836.3) |
| % of net sales | (1.0) | 0.6 | (0.8) | 0.0 |
| |
| Consumption of stores & spares | 74 | 71 | 5.3 | 213 | 209 | 1.7 |
| % of net sales | 2.0 | 3.6 | 1.9 | 3.4 |
| |
| Staff Cost | 147 | 149 | (1.1) | 492 | 420 | 17.4 |
| % of net sales | 3.9 | 7.5 | 4.3 | 6.7 |
| |
| Other Expenditure | 845 | 372 | 127.0 | 2,107 | 1,186 | 77.7 |
| % of net sales | 22.4 | 18.8 | 18.5 | 19.0 |
| |
| Total Expenditure | 1,031 | 604 | 70.6 | 2,722 | 1,817 | 49.8 |
| % of net sales | 27.3 | 30.5 | 23.9 | 29.1 |
| |
| Operating Profit | 2,739 | 1,379 | 98.6 | 8,646 | 4,422 | 95.5 |
| OPM% | 72.7 | 69.5 | 76.1 | 70.9 |
| |
| Other Operating Income | 0 | 0 | 0 | 0 |
| |
| EBIDTA | 2,739 | 1,379 | 98.6 | 8,646 | 4,422 | 95.5 |
| EBITDA margins (%) | 72.7 | 69.5 | 76.1 | 70.9 |
| |
| Interest | 0 | 0 | 0 | 0 |
| |
| Depreciation | 42 | 25 | 65.8 | 125 | 77 | 63.1 |
| Other Income | 443 | 246 | 80.5 | 1,206 | 862 | 39.9 |
| Exceptional Items | 0 | 0 | 0 | 0 |
| |
| Profit before Tax | 3,140 | 1,599 | 96.3 | 9,727 | 5,207 | 86.8 |
| % of net sales | 83.3 | 80.6 | 85.6 | 83.5 |
| |
| Tax | 1,042 | 534 | 95.1 | 3,228 | 1,760 | 83.4 |
| % of PBT | 33.2 | 33.4 | 33.2 | 33.8 |
| |
| Net profit | 2,099 | 1,066 | 96.9 | 6,499 | 3,447 | 88.5 |
4QFY2011- Actual vs Estimates
| (Rs cr) | Actual | Estimates | Variation (%) |
| Net Sales | 3,770 | 2,914 | 29.4 |
| EBITDA | 2,739 | 2,541 | 7.8 |
| EBITDA margins (%) | 72.7 | 87.2 | -1454bp |
| PAT | 2,099 | 2,039 | 2.9 |
Outlook
NMDC’s 4QFY2011 net sales was above our estimate, however, margins were below our estimates on account of higher-than-expected increase in selling and royalty costs. Prices of iron ore have declined slightly in the domestic market in the last two months. During May2011, NMDC had announced that it will cut iron ore prices by ~15%. Also, NMDC’s volume growth remains at risk on account of Naxals activity in some of its mines. We will lower our margin estimates for FY2012 and FY2013 in light of higher-than-expected selling costs reported in 4QFY2011. The stock is currently trading at a 6.6x FY2012E and 5.3x FY2013E EV/ EBITDA. We maintain Neutral rating on the stock.
Financial Summary
| Y/E March (Rs cr) | FY2009 | FY2010 | FY2011E | FY2012E | FY2013E |
| Net Sales | 7,564 | 6,239 | 11,369 | 13,952 | 16,045 |
| % chg | 32.4 | (17.5) | 82.2 | 22.7 | 15.0 |
| Net Profit | 4,372 | 3,451 | 6,499 | 8,919 | 10,167 |
| % chg | 34.5 | (21.1) | 88.3 | 37.2 | 14.0 |
| FDEPS (Rs) | 11.0 | 8.7 | 16.4 | 22.5 | 25.6 |
| OPM(%) | 77.2 | 70.9 | 76.1 | 86.6 | 85.8 |
| P/E (x) | 23.4 | 29.6 | 15.7 | 11.5 | 10.1 |
| P/BV (x) | 8.8 | 7.2 | 5.3 | 3.9 | 3.0 |
| RoE (%) | 43.9 | 26.6 | 38.8 | 39.2 | 33.4 |
| RoCE (%) | 57.7 | 33.4 | 50.6 | 52.1 | 44.4 |
| EV/Sales (x) | 12.2 | 14.3 | 7.6 | 5.7 | 4.5 |
| EV/EBITDA (x) | 15.9 | 20.2 | 9.9 | 6.6 | 5.3 |
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