UBS maintains `Sell’ rating on NMDC

RESEARCH: UBS

RATING: SELL

CMP: 268.30

UBS maintains `Sell’ rating on NMDC with a price target of 210. NMDC’s Q1FY11 PAT of 1,500 crore was marginally lower than the estimate of 1,580 crore mainly due to lower revenue. This was partly offset by higher than estimated EBITDA margins. Revenue increased 97% y-o-y to 2,520 crore due to 20% increase in volumes. EBITDA margin improved to 81% from 76% in Q4FY11 largely due to: 1) 36% q-o-q increase in average net realisation 2) lower other expenses, primarily royalty costs. Total operating cost was 470 crore lower than the estimate of 670 crore, primarily because of lower other expenses. Royalty cost per tonne was 242 in Q1FY11. NMDC has raised prices by 22%/14% q-o-q for export/domestic customers for Q2FY11. NMDC now follows quarterly pricing and will pass on 2/3rd of the export price increase to domestic customers. UBS continues to value iron ore business using NPV (net present value) and steel business on book value of investments as at FY11E and remains cautious due to expensive valuations.