India Infoline maintains sell on NMDC; price target Rs 236

MUMBAI: India Infoline has maintained its sell rating on NMDC with a nine-month price target of Rs236 citing premium stock valuations.

“We believe that NMDC should trade at a premium to its peers considering the high quality reserves and the low cost operations, but the current high premium is not justified,” said analyst Tarang Bhanushali in a note to clients.
Shares of NMDC are trading at Rs

The brokerage estimates the company’s earnings per share in 2010-11 at Rs16.4 compared to Rs8.7 in 2009-10. In 2011-12, the company may report EPS of Rs20.1, it said.

NMDC’s volume growth may remain curtailed over the next two years as it is impacted by Maoist activities in Chhattisgarh. The Bailadila complex in the state contributes 76% to NMDC’s volumes.

“Production volumes have fallen in FY10 and FY11 as transportation has been impacted after the Essar pipeline was blown up by Naxalites in June ‘09 and rebels damaged rail tracks. Further, movement of iron ore has been curtailed as Railways now operate only during the day,” the report said.

“In addition, volumes would be further impacted on account of the lower permits issued by the Karnataka government. In FY12, we expect iron ore volume to be 29mn tons (lower than mgmt guidance of 30mn tons) and 33mn tons in FY13 with higher contribution from Karnataka mines,” it said.