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Motilal Oswal Sees Upside in NMDC On Strong Fundamentals Despite Pricing Pressure

NMDC share price rallied more than 3 percent intraday Friday after Motilal Oswal, with its buy rating, expects the stock to give 59 percent returns at Rs 180. It is betting on company’s strong fundamentals with attractive valuations, though it sees some pricing pressure.

“At conservative 59 percent payout versus last five-year average of 79 percent, the dividend yield at 5.3 percent is attractive. Although there is near-term pressure on pricing, the volumes growth outlook remains robust due to the company’s strong competitive advantage. Valuations are extremely attractive,” it explained.

NMDC, too, has cut prices by Rs 200 per tonne w.e.f. July 1 2017.

Motilal Oswal said it has trimmed margins, but raised volumes estimates by 2.1mt to 40.1mt for FY19 as the operations remain strong; increased sales growth to 18 percent YoY in Q1FY18. As a result, it reduced EBITDA estimates by 5 percent to Rs 5,700 crore for FY19.

Meanwhile, NMDC’s board continues to pursue divestment at its steel plant and has appointed a banker.

Therefore, the research house believes that capital work in progress (CWIP) deserves at least book value. If Indian iron ore exports do not pick up, NMDC may need to take another price cut of Rs 200-300 per tonne, which can trim EBITDA by Rs 1,200 crore to Rs 4,600 crore.

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