We expect NMDC's iron ore volumes to grow at a CAGR of 13% to 39mtpa over FY12-15

Initiating Coverage

Sector: Metals

NMDC

BSE SENSEX

S&P CNX

17,399

5,279

CMP: INR196

Gaining pricing power

Unlike global peers



TP: INR231

Buy

Bloomberg

NMDC IN

Equity Shares (m)

3,964.7

52-Week Range (INR) 268/136

1,6,12 Rel. Perf. (%)

10/14/-18

M.Cap. (USD b/INR b)

14/777

Financial summary (INR b)

Y/E March

2012 2013E

Net Sales

112.6 129.6

EBITDA

89.3 102.2

PAT

73.2 81.9

EPS (INR)

18.5 20.7

BV/Sh. (INR)

61.6 75.9

P/E (x)

10.6

9.5

P/BV (x)

3.2

2.6

EV/Sales (x)

5.1

4.2

EV/EBITDA (x)

6.4

5.3

RoE (%)

31.7 28.5

RoCE (%)

31.5 28.4

RoIC (%)

348.6 278.7

Price as on 2 July 2012



2014E

155.8

124.1

97.5

24.6

92.9

8.0

2.1

3.4

4.2

26.8

26.7

278.5



While globally, the iron ore business is facing a slowdown, strong domestic demand

coupled with constrained supply has improved fundamentals of Indian iron ore miners

like NMDC.

Investments in pelletization capacities in India will lead to acceleration in demand

(and therefore, higher prices) for iron ore fines, which constitute ~65% of NMDC's

product mix.

Unlike its global peers, NMDC should witness an uptrend in its average iron ore

realization, helping to keep its margins resilient. Also, return ratios should improve,

with higher payout.

Post the 35% decline from the March 2010 FPO price coupled with 2.1x increase in

earnings over FY10-12, the stock trades at an attractive EV/EBITDA of 4.2x FY14E and

EV/ton of USD7. Buy.

Expect 13% CAGR in iron ore volumes over FY12-15:

We expect NMDC's iron ore

volumes to grow at a CAGR of 13% to 39mtpa over FY12-15 with (1) easing logistics

bottlenecks, (2) CEC permission for forward sales in Karnataka, and (3) increase

in capacity to 47mtpa by the end of FY13.

Foresee uptrend in average iron ore realization:

Faced with increasing prices/

shortage of lumps, steel producers in India have made major investments in

pelletization and sintering capacities in the last couple of years. This will lead to

acceleration in domestic demand for iron ore fines, which in turn will result in

higher domestic prices and narrow the gap with international prices. Fines

constitute ~65% of NMDC's iron ore sales. Hence, we foresee an uptrend in

NMDC's average iron ore realization.

High quality, low cost assets driving superior returns:

NMDC has exceptional

RoIC of 350% against an average of 32% for global peers because of high asset

turnover ratio of 4-5x and EBITDA margin of 70-80%, driven by high quality of ore

and economies of scale. Despite retaining INR200b in cash, the RoCE at 32% is

still far higher than an average of 22.4% for global peers. Its exceptionally

attractive RoIC is an excellent cushion against possible correction in international

iron ore prices. NMDC stepped up its payout ratio by 5 percentage points to

28.5% in FY12. The dividend yield at the current market price is 2.3%. We expect

20% annual growth in dividend.

Valuations attractive now:

While the stock price has declined 35% from the

March 2010 FPO price of INR300, earnings have increased 2.1x over FY10-12.

NMDC is currently trading at an EV of 4.2x FY14E EBITDA v/s an average EV of 4.6x

CY13E EBITDA for global peers, despite its relative strengths. In our estimates,

we are currently ignoring upsides to realization to cushion against possible

correction in international prices. We initiate coverage on NMDC with a

Buy

rating. Our 1-year target price is INR231 (EV of 5x FY14E EBITDA), 18% upside.

Shareholding pattern % (Mar-12)

Foreign,

Others,

0.72

0.97

Domestic

Inst, 8.32

Promoter

90.0

Stock performance (1 year)

3 July 2012

NMDC

Expect 13% CAGR in iron ore volumes over FY12-15

Enablers: Demand pressure, latent capacity



Capacity additions by key customers like RINL and JSW Steel, coupled with restrictions on

mining in Karnataka are creating demand pressures on NMDC. Just RINL and JSW Steel

will together require 30-35mtpa of iron ore.

NMDC’s iron ore production has stagnated over the last five years due to (1) logistics

bottlenecks in evacuating iron ore from Bailadila mines due to repeated damage to

Essar’s slurry pipeline by Naxals, and (2) shifting to E-auction for the sale of iron ore from

its Karnataka mines.

However, with (1) easing logistics bottlenecks, (2) CEC permission for forward sales, and

(3) increase in capacity to 47mtpa by the end of FY13, we expect NMDC’s iron ore volumes

to grow at a CAGR of 13% to 39mtpa over FY12-15.

In a sweet spot in both Chattisgarh and Karnataka

We believe that NMDC is in a sweet spot in both Chhattisgarh and Karnataka because

of capacity expansion by its key customers.

Rashtriya Ispat Nigam (RINL) has recently commissioned a new blast furnace at its

Vizag plant, doubling capacity to 6.5mtpa. NMDC, which services RINL from its Bailadila

(Chattisgarh) mines, is RINL’s sole iron ore supplier. Alternate suppliers in Odisha are

far away and are unable to meet the requirement of such large consumption. RINL

will require 10-12mtpa of iron ore supply to feed its blast furnaces.

Similarly, the Supreme Court’s directive capping overall iron ore production in

Karnataka at 30mtpa has increased NMDC’s bargaining power in the region. JSW Steel

has already increased capacity to 11mtpa and is adding further 2mtpa, which will take

its overall iron ore requirement to 20-23mtpa. NMDC was supplying just 2-3mtpa

before the mining ban was enforced in 2011.

We expect intense demand pressure from its key customers to create an enabling

environment for NMDC to hasten production ramp-up. There could be upside risk to

our estimate of 13% CAGR in NMDC’s iron ore volumes over the next three years.

Expect commencement of Deposit-11B, Kumaraswamy mines to boost volumes (mtpa)

Ki randul

Ba chel i

Doni mal a i

11B

Kumars wa my

Iron ore requirement of

key customers increasing

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E

Source: Company/MOSL

3 July 2012

NMDC

Chattisgarh: Deposit-11B, improvement in logistics to aid production growth

NMDC has two iron ore mining complexes in the Bailadila region of Chhattisgarh –

Kirandul and Bacheli. Though the iron ore seams are continuous in the region, NMDC

has created two complexes for operational convenience. Together, these two

complexes have a capacity to produce ~28mtpa of iron ore. Logistics issues have

constrained production at the Bailadila mines. NMDC is addressing these issues and

the commencement of the uniflow dispatch system, which is currently under trial

run, should help increase dispatches. Another deposit, Deposit-11B is in advanced

stages of development and will add 7mtpa to NMDC’s existing iron core capacity in

Chattisgarh.

Kirandul Complex – to ramp up by 3-4mtpa, with improvement in logistics:

NMDC’s

Kirandul Complex comprises of Deposit-14, Deposit-14NMZ and Deposit-11C, and has

a capacity of 12.7mtpa. At its best, production from this complex has touched 11.4mtpa

in FY08 and FY09. Thereafter, there has been a decline in production because dispatches

suffered due to repeated damage to the slurry pipeline carrying iron ore to its

customer, Essar’s facility in Vizag. The Naxals in the region had damaged Essar’s slurry

pipeline in July 2010. The complex returned to full production after restoration of the

slurry pipeline in 4QFY11, but the Naxals damaged the pipeline again in October 2011.

Once the logistics bottlenecks are addressed, production should bounce back.

Kirandul Complex: Annualized volumes (mtpa)

Commencement of

uniflow dispatch system

will increase dispatches

Source: Company/MOSL

Bacheli Complex – production stable at 12-13mtpa:

The Bacheli Complex comprises of

Deposit-5, Deposit-10 and Deposit-11A, and has a total capacity of 15mtpa. This

complex has been producing and dispatching 12-13mtpa despite logistics bottlenecks.

We expect volumes to inch up gradually.

Deposit-11B – in advanced stages of development; to add 7mtpa:

Deposit-11B is

advanced stages of development. It will have a capacity of 7mtpa and requires capex

of just INR6.1b. We expect production to ramp up gradually because of logistics

bottlenecks.

Karnataka: Kumaraswamy mines, pellet plant to drive volumes

In Karnataka, deliveries from NMDC’s Donimalai mines had declined from a peak of

6.9mtpa in FY08 to 4.2mtpa in FY11, as production had started tapering off. Also, permits

for the new Kumaraswamy mines were held up due to litigation by private mines in

3 July 2012

NMDC

the region. The Supreme Court order banning mining in Karnataka came as a blessing

in disguise for NMDC. It resulted in fast track permission for its 7mtpa Kumaraswamy

mines, enhancing its iron ore mining capacity in Karnataka to ~11mtpa and its overall

iron ore mining capacity to 39mtpa. However, NMDC has struggled to achieve the

desired production rate due to lack of mechanization at Kumaraswamy mines and

change in sales mechanism from MoU to E-auction.

Supreme Court order banning iron ore mining in Karnataka, a blessing in disguise:

The

Supreme Court order dated July 2011, banning iron ore mining in Karnataka to prevent

illegal mining and further environmental damage, came as a blessing in disguise for

NMDC. With private mines not allowed to operate, the Supreme Court ordered NMDC

to supply 1m tonnes every month to the local steel mills. The Central Empowered

Committee (CEC) immediately granted all necessary permissions for the

Kumaraswamy mines. As a result, the mining permissions for NMDC increased by

7mtpa to 39mtpa.

CEC permission for forward sales helps volumes impacted by E-auction to bounce

back:

Since E-auction prevented forward sales, which were possible in the earlier

long-term sales arrangements, the storage requirement shot up. As NMDC had limited

storage space in the region, it had to stop production until the material sold through

E-auction was lifted by bid winners. This resulted in deliveries declining at an

annualized rate of 3.9mtpa in 3QFY12. CEC has allowed forward sale of production so

that the material can be loaded on wagons on a just-in-time basis. As a result, the

annualized rate of deliveries increased to 7.2mtpa in 4QFY12.

Karnataka mines: Annualized volumes (mtpa)

Capacity enhaced to

12mtpa by SC order

Karnataka mining ban

expedited the approvals

for Kumarswamy

Forward sales to aid

production growth

Source: Company/MOSL

Mechanization of

Kumarswamy mines to be

completed by Sept, 2013

Mechanization of Kumaraswamy mines underway; likely completion by September

2013:

To mechanize its Kumaraswamy mines, NMDC has begun an INR8.9b capex

project, for which MECON is the consultant. The project is being executed through six

packages. Orders for the four main packages (Crushing Plant, Downhill, Electrical

Works and Water Supply Pipelines) have been placed and work is in progress. The

remaining packages are in various stages of tendering/ordering. The entire

mechanization project is likely to be completed by September 2013.

3 July 2012

NMDC

Pellet plant – 1.2mtpa bonus to overall volumes:

NMDC is putting up 1.2mtpa pellet

plant at a capex of INR5.72b in Bellary, which is likely to be completed by March 2013.

The plant will utilize slime, which is otherwise wasted, thus adding to overall volumes.

The project is being executed through six packages (Pelletization, Beneficiation, Site

Leveling, MRSS, Boundary Wall/Miscellaneous Buildings, and Mobile Equipment),

three of which have already been tendered. NMDC has obtained environmental

clearance, soil investigation has been completed and foundation work has

commenced at the site.

Expect total iron ore/pellet dispatch capacity of 47mtpa by the end of

FY13

NMDC has two operational iron ore mining complexes in the Bailadila region of

Chhattisgarh, which have a total capacity of ~28mtpa, and depleting mines in

Donimalai in the Bellary district of Karnataka. Deliveries from the Donimalai mines,

which it had been planning to replace with new mines in Kumaraswamy, had declined

from a peak of 6.9mtpa in FY08 to 4.2mtpa in FY11. However, permits for the new

Kumaraswamy mines were held up due to litigation by private mines in the region.

The Supreme Court order banning mining in Karnataka came as a blessing in disguise

for NMDC. It resulted in fast track permission for its 7mtpa Kumaraswamy mines,

enhancing its iron ore capacity in Karnataka to ~11mtpa and its overall iron ore

capacity to 39mtpa. Deposit-11B in Chattisgarh, which is in advanced stages of

development and is likely to start production by the end of 3QFY13, will add 7mtpa.

Thus, NMDC’s total mining capacity should increase to 46mtpa by December 2012.

Including its pellet plant in Bellary, NMDC’s total iron ore and pellet dispatch capacity

would be 47mtpa by the end of FY13.

Operational iron ore mining capacity of 32mtpa

Mines

Lease area

(Ha)

Kirandul Complex, CG

Deposit 14

Deposit 14 NMZ

Deposit 11C

Bacheli Complex, CG

Deposit 5

Deposit 10

Deposit 11A

Donimalai Complex, KN

Donimalai

CG: Chhattisgarh; KN: Karnataka

322.4

506.7

Extraction

capacity

(mtpa)

0.7

Lease

Validity

2015

2017

2015

2017

2028

Proven

reserves

(m tons)

132.2

63.9

0.7

43.5

142.4

25.6

Fe %

64.7

65.8

64.7

65.4

65.9

65.5

540.1

309.3

874.9

608.0

22.1

66.3

Source: Company/MOSL

3 July 2012

NMDC

Foresee uptrend in average iron ore realization

Driver: Acceleration in demand for fines (~65% of NMDC’s iron ore sales)



Faced with increasing prices/shortage of lumps, secondary steel producers in India have

made major investments in pelletization and sintering capacities in the last couple of

years.

This will lead to acceleration in domestic demand for iron ore fines, which until recently

were largely being exported. With demand acceleration, prices should also improve.

Fines constitute ~65% of NMDC’s iron ore sales. Hence, we foresee an uptrend in NMDC’s

average iron ore realization.

Given constrained lump supplies, domestic steel makers are looking at

alternatives

Though iron ore consumption has continued to grow in India, driven by increasing

steel production, iron ore production has declined significantly due to crackdown on

illegal mining followed by a ban on mining in the state of Karnataka. Also, no new

mining permits have been issued in the last two years. The changing profile of existing

mines, as they get deeper, has reduced the production of lumps. Reduced availability

of lumps has forced Indian steel producers to look for alternatives.

Declining iron ore production in India (mtpa)…

…and declining share (%) of lumps in Indian iron ore production…

Percentage of Lumps

decreasing in the mix

Source: Company/MOSL

3 July 2012

NMDC

…is driving demand for fines and investments in sintering/pelletization

Exponential growth

in investment in

Pellitization

Source: Company/MOSL

Investments in sintering and pelletization have been spurred

70% of the incremental

pellet capacity to source

fines from the open

market

Steel producers have now started investing in utilizing iron ore fines. This has spurred

investments in sintering and pelletization. Companies like Usha Martin, Jai Balaji and

Adhunik Metaliks have already set up sintering plants. Sesa Goa is in the process of

setting up a sintering plant for its pig iron facilities at Goa. Players such as JSW Steel,

Jindal Steel, Tata Steel, Arya Group, Sarda Energy, Godawari Power, MSP Ispat, Adhunik

Metaliks and Ardent Steel have already set up pelletization capacities in the last two

years. Stemcor, Jindal Steel, Essar Steel, NMDC, Godawari Power, SAIL, Usha Martin,

etc are currently in the process of building pelletization capacities. We expect ~20mtpa

of pelletization capacity to commission in 2012. Over 70% of these capacities will

have to source fines from the open market.

Expect prices of fines to move up with increasing demand

Secondary steel producers using the DRI (direct reduced iron or sponge iron) route no

longer enjoy the benefit of lower than international iron ore prices. With supply

becoming tight, domestic prices of DRI grade lumps have already crossed international

prices. As a result, the margins of secondary producers have shrunk, despite steel

prices heading north in FY12.

DRI route steel producers have started paying Chinese price equivalent for lumps…

Source: Company/MOSL

3 July 2012

NMDC

…and have seen margins shrinking despite higher steel prices

Source: Company/MOSL

Fines at heavy discount

to lumps in the domestic

market

The prices of iron ore fines too have inched up over the last 2-3 years, largely due to

the international trend. However, the discount to lump prices in India continues to be

much higher than in international markets. The domestic prices of iron ore fines as a

percentage of the prices of lumps have done some catching up, but they are still at

over 50% discount, unlike just 10-15% in the international markets.

Prices of fines continue to be at heavy discount to

lump prices in India…

…unlike international markets

Source: Company/MOSL

NMDC to be key beneficiary of uptrend in prices of fines

International iron ore prices could weaken due to slowing fixed asset formation in

China and the global economic slowdown, but industry consolidation should ensure

that the fall is gradual. Domestic iron ore prices will be supported by India’s stronger

fundamentals and the weakening Rupee. As far as fines are concerned, the huge

discount gap between domestic and international pricing gives significant headroom.

We expect the uptrend in domestic prices of iron ore fines to gain further traction

with increasing demand. NMDC will be a key beneficiary, as fines constitute ~65% of

its product mix.

3 July 2012

NMDC

Discounts not supported by metallurgy to reduce in line with international

trend

The blast furnace route is the most successful and widely used technology across

the world to convert iron ore into steel metallic. It is the only technology capable of

using all types, sizes and grades of iron ore. Lumps are directly charged in the furnace,

while fines are first sintered with the help of coke breeze. Sintering should not be

seen as an unnecessary cost additive process. Not only does it make fines usable, it

also improves furnace productivity and, most importantly, makes coke breeze usable.

Coke breeze is produced during the coke making and handling process. The net

realizable sales value of coke breeze is much lower than the cost of production.

Coke breeze acts as fuel and helps in partial reduction of iron ore during sintering.

Therefore, iron ore fines are equally valuable in steel making through the blast

furnace route. There is no metallurgical reason for the heavy price discount prevalent

in India. Currently, NMDC sells iron ore fines at 50% discount to lump prices. Globally,

iron ore fines trade at just 10-15% discount to lumps. We expect the emergence of a

similar trend in India.

Comparison of blast furnace, corex and sponge iron routes

Blast furnanc

Iron bearing

input

Carbon input

Process

specific

issues

Lumps (10-40mm)/fines/

sinter/Pellet

Coking coal and PCI



Corex

Pellets

Spone Iron

Pellets or lumps

(5-18mm size)

High grade thermal coal Thermal coal/natural gas



100% of mined iron

ore and coking coal

is usable

Iron ore lumps are

directly used

Both iron ore fines

and coke breeze

produced during

crushing of iron ore

and coke handling,

respectively are

sintered together for

use in blast furnace

Iron ore fines need

to be processed

first into pellets

High grade thermal

coal (over a certain

minimum size) is

required



Pellets are expensive

and DRI grade iron

ore is in short supply

Specific consumption

of coal is 60% higher



Coal rejects and

high calorific gases

are by-products

Coke requirement is

reduced but not

eliminated

High specific

consumption of

coal and rich

by-product gases

offset the

advantage of low

cost thermal coal



Blast furnace

route is the

most efficient

process



Zero waste of raw

material

Since specific

consumption of coking

coal is lower than

thermal coal, the

logistics costs too

are lower



Gas-based process

is efficient but gas

pricing is the key



Source: Company/MOSL

3 July 2012

NMDC

NMDC’s realization (indexed to the international benchmark) has lagged far behind

the international benchmark due to domestic oversupply, fragmentation of domestic

mines, and rising export and rail freight levies due to lobbying by key steel producers.

We believe this gives significant headroom for improvement in NMDC’s average

realization, especially in a scenario of increasing demand for / tightening supply of

iron ore fines in India.

Iron ore fines constitute ~65% of NMDC’s product mix (%)

NMDC’s realization (indexed to international benchmark) lagging international benchmark

NMDC realization is

lagging international

benchmark

Crackdown on illegal mining, regional volume caps have squeezed exports

Exports from states other than Goa

Source: Company/MOSL

3 July 2012

NMDC

Rising domestic crude steel production will keep driving demand

Pricing of fines has also started moving away from export parity (INR/t)

Source: Company/MOSL

Iron ore pricing in India: A perspective

High fragmentation in India…

…against high consolidation globally…

Over-production, fragmentation, and export levies had curtailed the pricing power of Indian iron ore mines.

Source: Company/MOSL

3 July 2012

NMDC

…coupled with over-production led to export parity prices (mtpa)

Source: Company/MOSL

Frequent hikes in export duties suppressed pricing power of Indian iron ore mines…

Fines <62% Fe %

Dec-11

Mar-11

Jan-10

Dec-09

Dec-08

Nov-08

Oct-08

Jun-08

May-07

Mar-07

Until Feb -2007

INR200/t

INR50/t

INR300/t

Nil

Fines >62% Fe %

INR200/t

INR300/t

Nil

Lumps %

INR300/t

Nil

Source: Company/MOSL

…as did rising rail freights

Source: Company/MOSL

3 July 2012

NMDC

Consequently, ex-mine prices are much lower in India

Source: Company/MOSL

Primary producers like JSW Steel have been key beneficiaries

Primary producers like JSW Steel that have invested in beneficiation and pelletization have

been the key beneficiaries of NMDC’s export parity pricing mechanism.

Source: Company/MOSL

3 July 2012

NMDC

Margins to be resilient, unlike global peers

Drivers: Higher realization, superior quality ore, low production cost



NMDC’s operating assets have proven reserves of 458m tonnes. With average Fe grade of

65.5%, the quality of its ore is among the best in the world. Total resource are estimated

to be 2.2b tons.

At USD18/tonne, NMDC’s cost of production is one of the lowest in the world. This coupled

with the expected increase in average realization should aid margins.

Margins of global peers would be under pressure, given the current economic scenario.

However, we expect NMDC’s margins to remain resilient.

Superior quality ore – the best in India

R&R is likely to increase

~50% to 2.2b tonnes

As at 31 March 2011, NMDC had rich reserves and resources (R&R) of 1,434m tonnes,

implying mine life of 50 years. According to the company’s internal reassessment, the

total R&R is likely to increase by ~50% to 2.2b tonnes. NMDC will make a formal

announcement, once it receives JORC (Joint Ore Reserves Committee) certification.

Its operating assets have proven reserves of 458m tonnes, with average Fe grade of

65.5%. This is the best quality ore in the world, second only to some mines of Vale,

Brazil. Further exploration and lowering of cut-off grade will enhance R&R significantly.

NMDC has undertaken projects to expand capacity by 65% to 50mtpa. This expansion

is still much below its true potential, though there remain challenges in getting

regulatory approvals.

NMDC’s mines hold superior quality ore

Operating Mines

State

Fe%

Bailadila Deposit-14/11C

Chhattisgarh

64.7-65.8

Bailadila Deposit-5, 10/11A

Chhattisgarh

65.4-65.9

Donimalai

Karnataka

66.3

Kumaraswamy

Karnataka

Non-operating Mines

Deposit 11B

Chhattisgarh

66.4

Deposit 13*

Chhattisgarh

67.2

*Deposit-13 is a joint venture with Chhattisgarh Mineral Development Corporation Limited,

with NMDC having 51% equity interest.

Source: Company/MOSL

NMDC’s mines have the best quality iron ore in India

Source: Company/MOSL

3 July 2012

NMDC

Best product mix (Lumps % highest)

Source: Company/MOSL

R&R up 161m tonnes in two years

Reserves and resources (1st April 2009)

Deposit/Mine

Chhattisgarh

Bailadila Deposit 5

Bailadila Deposit 10

Bailadila Deposit 11A

Bailadila Deposit 11 (11B+Part of 11C)

Bailadila Deposit 14

Bailadila Deposit 14 NMZ

Bailadila Deposit 13

Karnataka

Donimalai

Kumaraswamy

Grand Total

Total R&R

Reserve

(m tons)

1,024

226

142

115

132

320

153

131

1,177

Resources

(m tons)

Reserves and resources (31st March 2011)

Deposit/Mine

Chhattisgarh

Bailadila Deposit 5

Bailadila Deposit 10

Bailadila Deposit 11A

Bailadila Deposit 11 (11B+Part of 11C)

Bailadila Deposit 14

Bailadila Deposit 14 NMZ

Bailadila Deposit 13

Karnataka

Donimalai

Kumaraswamy

Grand Total

Total R&R

Reserve

(m tons)

1,075

224

193

114

127

325

156

130

1,231

Resources

(m tons)

204

1,273

204

1,434

Cost of production among the lowest in the world

NMDC’s cost of production is one of the lowest in the world. Its iron ore mining

operations are concentrated at two locations, allowing it to benefit from scale of

operations. The company has access to a relatively large and inexpensive labor/talent

pool in India. It is trying to lower costs further across its operations through (1)

mechanization of mines, (2) focus on continually reducing mining costs, and (3)

improvement in operational efficiency, including logistics. NMDC’s new expansion

projects are adjacent to its existing mines, enabling it to utilize its existing

infrastructure for new production. It also benefits from financial strength due to high

net worth, high cash resources, and zero debt.

3 July 2012

NMDC

Cost of production (USD/t) one of the lowest in the world…

Note: Inclusive of freight, royalties, etc.

Source: Company/MOSL

…despite significant increase in royalty (USD/t)

Source: Company/MOSL

Margins to remain resilient, unlike global peers

NMDC margins to

remain resilient

International iron ore prices are expected to weaken, as steel production in China is

slowing down and the commissioning of new iron ore projects would bring additional

supplies. The margins of NMDC’s global peers are, therefore, likely to be under

pressure. However, NMDC’s average realization is likely to move up, as (1) domestic

iron ore supplies have been constrained due to regulatory issues, and (2) investments

in pelletization capacities will result in higher demand (and, therefore, higher prices)

for iron ore fines, which constitute ~65% of NMDC’s product mix. The expected increase

in its average realization, coupled with superior quality ore and low production cost

should enable NMDC’s margins to remain resilient.

3 July 2012

NMDC

RoE to improve

Driver: Higher payout



NMDC generates exceptionally high RoIC of 300-400%, aided by low capex intensity (fixed

asset turnover of 4-5x) and high margins (70-80%).

However, it has preferred to accumulate profits rather than distribute them, resulting in

high cash of over INR200b. Relatively low yield on cash adversely impacts RoE.

The company has increased its dividend payout from a narrow range of 22-24% over

FY05-11 to 28.5% in FY12. This has helped to arrest the decline in RoE.

We expect NMDC to step up dividend payout ratio further, as it will find it difficult to

reinvest its high cash flows. This will help enhance RoE.

Expect dividend payout to increase despite INR300b capex

NMDC has preferred to accumulate profits rather than distribute them to shareholders.

As a result, its cash chest has swelled to over INR200b. Though the company has

planned investments of INR300b, mostly in steel making in the vicinity of its mines in

Chhattisgarh and Karnataka, its cash flows over the next five years along with available

cash surpluses will far outstrip its capex requirements. We estimate that the iron ore

business alone will generate free cash of INR433b in the next five years. Add to this

INR203b of existing cash surplus and INR83b of interest income, and NMDC will have

total cash of INR719b. Assuming a payout ratio of 33% (against 28.5% in FY12), it will

pay out only INR174b as dividend. This implies available surpluses of INR545b for

capex from retained earnings alone.

Though NMDC has planned capex of INR300b over FY13-17, we expect execution to

lag, given its lack of experience in steel making and public sector inefficiencies. We

believe NMDC will be better off returning more of its earnings to shareholders rather

than funding projects with 100% equity.

Cash surplus will far

outstrip capex

requirements

Planned capex of INR300b over FY13-17

NMDC has planned investments of INR300b over the next five years, mostly in steel

making in the vicinity of its mines in Chhattisgarh and Karnataka to enhance its iron

ore resource base. States have stopped issuing leases for merchant mining. The

internal rate of return (IRR) of the steel project will increase from 4.4% to 13.4% with

the help of captive iron ore mines, yet it will be short of NMDC's cost of equity of

15.8%. It is important that these steel projects are funded with some amount of debt

so that the weighted average cost of capital (WACC) is below IRR.

3mtpa greenfield steel project in Chattisgarh (capex: INR155b)

NMDC is executing a 3mtpa greenfield steel project at a capex of INR155b. The

integrated steel plant will be located at Nagarnar, Jagdalpur, in the state of

Chhattisgarh. The state has recommended Deposit-4 in Bailadila for this steel project

on 30 September 2010. The steel project has received all statutory clearances, but

the mine clearances are at early stages. NMDC’s existing mines at Bailadila will

supply the required iron ore through a slurry pipeline until Deposit-4 starts producing

iron ore. So far, INR10b has been spent. Work has started at the sites for Blast Furnace,

RMHS and Coke Ovens. Sinter Plant, Blast Furnace, Raw Material Handling System,

Coke Oven, By-product Plants, Steel Melting Shop, Thin slab Caster & Hot Strip Mill

and Oxygen Plant packages have been ordered. Lime & Dolomite Plant is under final

stage of ordering. The project is likely to be completed by the end of FY15.



3 July 2012

NMDC

IRR v/s margins

EBITDA (USD/T)

100

150

200

250

IRR (%)

2.0

4.4

8.0

10.9

13.4

DCF Valuations -

Steel Business (INR m)

Project Cost

155,000

WACC (%)

15.8

EBITDA/ton (USD)

100

NPV of cashflows (a) -72,357

Spent so far (b)

10,000

Equity value (a+b)

-82,357

Number of shares (m) 3,965

DCF value per share

-21

Though an integrated steel plant with dedicated captive iron ore mines is considered

an attractive project, the NPV of NMDC’s project is negative because it will be funded

by high cost equity. At a WACC of 15.8%, this project will result in equity value

destruction of INR83.4b or INR21/share if iron ore is supplied by existing mines. We

are assuming that the steel plant will deliver EBITDA of USD100/tonne in FY17,

growing at 2% per year thereafter. If Deposit-4 becomes operational by then, EBITDA

might expand to USD250/tonne, still resulting in an NPV loss of INR22b or INR6/

share. In our view, this project should be funded by 50% debt so that WACC comes

down and equity value increases. The IRR of the project ranges from 2% to 13.4%

depending upon EBITDA margins.

Sensitivity table: DCF (INR/share)

WACC (%)

100

150

250



8.0

-27

-20

-13

12.0

-27

-23

-19

-11

15.8

-26

-23

-21

-16

-6

17.0

-25

-23

-21

-17

-8

18.0

-25

-23

-21

-17

-9

19.0

-25

-23

-21

-17

-10

3mtpa steel plant in Karnataka in JV with Severstal

NMDC has been allocated 2,500 acres of land in Karnataka, where it is planning to set

up a 3mtpa steel plant jointly with Severstal. The project plan includes captive iron

ore and coal mines. However, there is still no clarity on allotment/acquisition of

mines. Also, details of the joint venture agreement are yet to be finalized. Severstal

has been trying to enter the Indian steel space for a long time but has not done so

due to volatility in the steel market. Given the deteriorating outlook for the steel

sector, we are not sure whether this joint venture will translate into serious

investment.

1.2mtpa pellet plant at Donimalai, Karnataka (capex: INR5.7b)

NMDC is setting up a 1.2mtpa pellet plant at Donimalai in the Bellary district of

Karnataka at a capex of INR5.7b. The plant is likely to be commissioned by March

2013. We expect this project to be highly profitable – it will be converting waste

slimes into a value-added product. The company is planning a similar project in

Chhattisgarh as well.



International foray – small investments for future growth

With huge cash and cash equivalents, NMDC has started to look for overseas

acquisitions. It acquired 50% equity in Legacy Iron Ore, Australia in December 2011

for AUD18.9m. Legacy Iron Ore has about 1b tonnes of magnetite resource. NMDC

has also entered into an agreement to acquire 26% stake in a Brazilian iron ore firm,

Amplus, with reserves of over 1b tonnes.



Slowing demand from the steel sector in China and delivery of many new projects

have resulted in the iron ore market turning from tight supply to oversupply. The

world’s largest iron ore producer, Vale has rolled back its expansion plan in Brazil.

Projects like Legacy Iron Ore, which are at very early stages of development, will

need huge investments in mine and related infrastructure.

Further, NMDC is also looking for three overseas coal mines, one each in Russia,

Mozambique and Australia and a rock-phosphate mine in Australia.

3 July 2012

NMDC

Higher dividend payout to help enhance RoE

NMDC’s RoE has been declining after peaking in FY07, though RoIC peaked much later

in FY11. This can be attributed to relatively low returns on its high cash surpluses.

NMDC increased its dividend payout from a narrow range of 22-24% over FY05-11 to

28.5% in FY12. This has helped to arrest the decline in RoE. We expect NMDC to step

up dividend payout ratio further, which should help to reverse the trend of declining

return ratios.

Higher dividend payout in FY12 (%)…

…has helped to arrest declining RoE (%)…

…RoIC still remains superior (%)

Source: Company/MOSL

3 July 2012

NMDC

Valuations attractive now

Stock price down 35% from March 2010 FPO price



While the stock price has declined 35% from the March 2010 FPO price of INR300, earnings

have increased 2.1x over FY10-12.

The stock trades at an attractive EV/EBITDA of 5.3x FY13E at current ore prices. If the

prices of fines increase from the current 50% of lump prices to 80-85% of lump prices,

EV/EBITDA would be 4x FY13E.

NMDC increased its dividend per share by 36% in FY12. We expect the company to step

up its dividend payout further, which will be a catalyst for stock performance. Buy.

March 2010 FPO was aggressively priced

FPO was expensively

priced at 12x EV/EBITDA

NMDC’s follow-on public offer (FPO) of 332m shares in March 2010 was aggressively

priced at INR300/share. Institutional investors perceived the FPO as expensive (EV/

EBITDA of 12x; EV/ton of USD16) and stayed away. LIC bailed out the issue, purchasing

197m shares – 60% of the issue size or 4.97% of NMDC’s share capital. The Government

of India’s stake in NMDC declined from 98.32% to 90% after the FPO. Even post the

FPO, LIC continued to make open market purchases and increased its stake in NMDC

to 6.15%, leaving only 3.85% as practical free float.

FPO was overpriced and had to be bailed out by LIC (INR b)

Source: Company/MOSL

Stock price down 35% from March 2010 FPO price

The stock price has declined 35% to INR196 from the March 2010 FPO price of INR300.

Over the same period (that is, over FY10-12), NMDC’s earnings have increased 2.1x, as

domestic iron ore supply became tight due to crackdown on illegal mining. Valuations

have become attractive now – the stock is trading at an EV/EBITDA of 5.3x FY13E at

current iron ore prices. If our hypothesis that prices of iron ore fines will increase

significantly over the next couple of years due to widespread investments in

pelletization capacities in India holds, NMDC ’s earnings would be boosted

considerably, making valuations appear even more attractive. If prices of iron ore

fines jump from the current 50% of lump prices to 80-85% of lump prices, EV/EBITDA

would be 4x FY13E making the stock even more attractive.

3 July 2012

NMDC

Valuations are now attractive (INR b)

Source: Company/MOSL

Increasing dividend payout to be a catalyst for stock performance

NMDC stepped up

dividend payout to 28.5%

in FY12

NMDC stepped up its dividend payout ratio from a narrow range of 22-24% over FY05-11

to 28.5% in FY12. As a result, dividend per share increased by 36% to INR4.5. At the

current market price, this translates into a dividend yield of 2.3%. We expect the company

to step up its dividend payout ratio further, which will be a catalyst for stock performance.

Stepping up dividend payout can increase equity value by 50%

A mining company’s valuation is best understood by discounted cash flows (DCF)

over the life of its mines. NMDC has best iron ore mining assets in India. On an

average, its ore is of the 63-65% Fe grade, the best in the world after Brazilian mines.

Also, its mining assets are highly underexplored. NMDC’s total reserves and

resources are estimated at 2.2b tonnes.

International iron ore prices are expected to weaken, as steel production in China is

slowing down and the commissioning of new iron ore projects would bring additional

supplies. However, NMDC’s average realization is likely to move up, as (1) domestic

iron ore supplies have been constrained due to regulatory issues, and (2) investments

in pelletization capacities will result in higher demand (and, therefore, higher prices)

for iron ore fines, which constitute ~65% of NMDC’s product mix.

We are modeling average realization of USD90/tonne, which will start increasing at

3% per year from FY16, while cost of mining will continue to grow at 5% per year until

the end of mine life. We assume that production of iron ore will grow at 10% per

year, leading to exhaustion of the mines by FY34. The dividend discount model

implies expected market return of 15.5%. The cost of equity for NMDC is 15.8%, as its

adjusted beta with Sensex is 1.04, while risk-free interest is 8.1%. Since, NMDC has

no debt, its weighted average cost of capital (WACC) is high at 15.8%, i.e. equal to

the cost of equity.

Sensitivity table: INR/share

13.8

284

320

356

392

428

14.8

264

296

328

360

393

15.8

246

275

304

333

362

WACC (%)

16.8

230

256

283

309

335

17.8

216

240

264

288

312

18.8

204

225

247

269

291

DCF Valuations: Iron Ore

Business

WACC (%)

15.8

Realization (USD/ton)

R&R (m tons)

2,119

A. NPV of cashflows 999,383

B. Cash surplus

205,418

Equity value (A+B) 1,204,801

Number of shares (m) 3,965

DCF value per share

304

100

110

3 July 2012

NMDC

WACC Calculations (%)

A. Cost of Equity

(B+CxD)

B. Risk free rate

(91 day T-bill)

C. Beta (adj.)

with Sensex

D. Market Premium

E. Cost of Debt

F. DEBT/EQUITY (%)

G. WACC {ExF+Ax(1-F)}

15.8

8.1

1.04

7.4

10%

NIL

15.8

Expected market return (Sensex)

A. Dividend yield

B. RoCE

C. Retained Earnings ratio

D. Growth (BxC)

Market return (A+D)

Basis: Dividend discount model

2.01%

21%

63%

13.5%

15.5%

The outcome of the DCF model at various levels of iron ore realization and WACC

indicates that the lowest value is INR246/share and highest value is INR362/share at

a WACC of 15.8%. In our base case of realization at USD90/tonne and WACC of 15.8%,

the DCF value is INR304/share. There will be upside to realization, as the gap between

pricing of lumps and fines narrows. The DCF value would increase 7-8% for every 1

percentage point decrease in WACC, with the help of borrowings and increasing

payout above 100% of the free cash flows. Instead, NMDC is investing INR155b in a

steel project, which will lower its value by INR14-25/share depending on the EBITDA

margin and WACC, as tabulated below.

Sensitivity table: DCF (INR/share)

8.0

-27

-20

-13

12.0

-27

-23

-19

-11

15.8

-26

-23

-21

-16

-6

WACC (%)

17.0

-25

-23

-21

-17

-8

18.0

-25

-23

-21

-17

-9

19.0

-25

-23

-21

-17

-10

DCF Valuations: Steel

Business (INR m)

Project Cost

155,000

WACC (%)

15.8

EBITDA per ton (USD)

100

NPV of cashflows (a) -72,357

Spent so far (b)

10,000

Equity value (a+b) -82,357

Number of shares (m) 3,965

DCF value per share

-21

100

150

250

Further, NMDC is retaining 70% of its profits to invest in fixed deposits, which is

lower shareholders’ wealth by 60% by way of uninvested and undistributed profit

opportunity cost (UUPOC). According to our calculations, the NPV of UUPOC is

INR725b over the life time of mines at WACC of 15.8%. This translates into reduction

of equity value by INR436b or INR110/share. The value loss can be substantially

reduced to INR23/share, if the dividend payout is increased to 100% of profits.

DCF Valuations: UUPOC

(INR m)

Cash surplus

233,201

Pay-out ratio (%)

A. WACC (%)

15.8

B. NPV of

725,329

un-invested cash

Yield on UI cash (%)

Tax rate (%)

C. Post tax yield (%)

6.3

D. Yield as % of

WACC (C/A. %)

Loss of equity value -435,694

Number of shares (m) 3,965

DCF value per share

-110

Sensitivity table: DCF (INR/share)

8.0

13.8

-115

-102

-71

-44

-20

12.0

14.8

-112

-101

-71

-45

-22

15.8

-110

-99

-71

-46

-23

WACC (%)

17.0

16.8

-107

-97

-70

-46

-25

18.0

17.8

-104

-94

-69

-46

-26

19.0

18.8

-101

-92

-68

-47

-27

100

In summary, NMDC’s reinvestment strategies are suboptimal and are resulting in

value loss of 43%. Increasing dividend payout to 100% will result in equity value

accretion of INR87/share or 50%.

3 July 2012

NMDC

Reinvestment strategy is destroying equity value (INR/share)

Source: Company/MOSL

Buy with a target price of INR231 - 18% upside

We believe NMDC deserves superior valuations over its global peers, because:

1. Its realization will inch up due to stronger local market dynamics for fines, which

constitute 65% of its product portfolio. The realization of its global peers -

especially those that are exposed to Chinese demand - may however, come under

pressure due to slower growth in global demand.

2. NMDC's average realization is much lower than global peers, though lumps

constitute 35% of its product mix against less than 10% for global peers. Also, on

a like-to-like basis, NMDC gets USD50/tonne for iron ore fines, while global peers

command USD110-120/tonne for the same grade of iron ore fines.

3. We expect NMDC to deliver stronger volume growth of 13% CAGR over FY12-15.

4. NMDC generates RoIC of 350% against 14-35% for global peers.

NMDC's realization is lower than global

peers despite superior product (USD/t)

NMDC's margins will inch up, unlike global peers (USD/t)

3 July 2012

NMDC

NMDC's equity value based on free cash flows from its iron ore business discounted

at its WACC of 15.8% is INR304/share as at March 2013, provided all free cash flows are

returned to investors as they occur or reinvested in projects with similar returns.

However, the market is unlikely to attach this value because NMDC is unable to reinvest

retained earnings at its WACC. Higher dividend payout will aid stock performance, in

our view.

NMDC yet to command valuations commensurate to its superior return ratios

2011 (%)

RoE (%)

P/E (x)

Payout Ratio

RoIC RoCE

2012

2013

2012

2013

VALE

32.5

23.2

22.0

22.5

20.0

5.8

BHP

22.6

35.0

35.4

28.1

24.7

9.7

8.8

Rio

29.0

14.2

8.9

21.8

21.7

6.8

5.9

FMG

22.0

33.6

23.2

47.1

43.9

10.2

7.1

Global Avg.

26.5

22.4

29.9

27.6

8.1

6.9

NMDC *

28.5 348.6

31.5

28.5

26.8

9.5

8.0

* For NMDC 2011 is FY12, 2012 is FY13 and 2013 is FY14

EV/EBITDA (x)

P/B (x)

2012

2013

2012

2013

4.7

4.5

1.3

1.1

5.5

4.9

2.5

2.1

5.3

4.5

1.4

1.2

6.7

4.6

4.3

2.8

5.6

4.6

2.4

1.8

5.3

4.2

2.6

2.1

Source: Company/MOSL

NMDC has superior RoIC

and RoCE as compared to

global players

The stock is trading at an EV of 4.2x FY14E EBITDA v/s an average EV of 4.6x CY13E

EBITDA for global peers. As prices of iron ore fines inch up driven by local demand,

earnings upgrades should follow. Given the international market scenario, we are

currently ignoring upsides to realization. Depreciation of the INR against the USD is

guarding against softening of international iron ore prices. NMDC has superior RoIC

and RoCE as compared to global peers. We value NMDC at an EV of 5x FY14E EBITDA

and add 50% value of CWIP to arrive at our target price of INR231. At the current

market price of INR196, there is an upside of 18%.

Target price calculation (INR m)

Y/E March

EBITDA

Target EBITDA multiple (x)

Target EV

Less: Net Debt

Add: CWIP

Less: discount to CWIP (%)

Residual Market Cap

Target Price (INR)

2014E

124,113

5.0

620,566

-252,893

86,398

916,658

231

3 July 2012

NMDC

Annexure: NMDC - India’s largest iron ore producer

NMDC is India’s largest iron ore producer, with a capacity of 32mtpa. It produces

~27mtpa of iron ore from four mining complexes in Chhattisgarh and Karnataka. NMDC

was incorporated in 1958 as a public sector enterprise. It is under the administrative

control of the Ministry of Steel, Government of India. In addition to its iron ore

operations, NMDC has a diamond mine at Panna (Madhya Pradesh) and owns a 10.5MW

wind power plant in Karnataka. In July 2010, Sponge Iron India Limited, which has a

small sponge iron capacity of 60ktpa, was merged with NMDC. The contribution of

operations other than iron ore mining is insignificant at the topline and negative at

the bottomline. NMDC is investing INR300b over the next five years to expand its iron

ore production to 50mtpa and forward integrate by setting up a 3mpta steel plant in

Chhattisgarh and 1.2mtpa pellet plant in Karnataka.

Iron ore production complex-wise breakup (mtpa)

Source: Company/MOSL

Rich portfolio of high grade iron ore assets

NMDC possesses high grade iron ore reserves. As of 31 March 2011, its estimated

reserves and resources (R&R) were 1,434m tonnes. Most of its ore is of higher than

64% Fe grade. It is carrying out drilling to reassess its R&R. According to the company’s

internal reassessment, the total R&R is likely to increase by ~50% to 2.2b tonnes.

NMDC will make a formal announcement, once it receives JORC (Joint Ore Reserves

Committee) certification. Its producing mines are open cast and mechanized, except

for the recently commissioned Kumaraswamy mine. Currently, ~80% of its iron ore

production comes from its two mining complexes at Bailadila in Chhattisgarh. Lumps

constitute ~35% of its sales mix.

NMDC’s iron ore production capacity

Kirandul Complex

Deposit -14

Deposit -14 NMZ

Deposit 11 C

Bacheli Complex

Deposit - 5

Deposit 10/11A

Deposit 11A: 12-09-2017

Donimalai Complex

Donimalai

Kumaraswamy

3 July 2012

Production Limit/Output

0.7

Lease validity

11-09-2015

06-12-2015

12-09-2017

11-09-2015

Deposit 10: 10-09-2015

03-11-2028

17-10-2022

Source: Company/MOSL

NMDC

NMDC’s mineral portfolio

Source: Company/MOSL

A play on domestic demand

Most of NMDC’s revenue comes from the sale of iron ore to domestic consumers. The

contribution of exports has declined significantly after the expiry of contracts with

Japanese producers in FY11. Its other businesses including wind power, diamond

mine and sponge iron constitute <1% of its total revenue. NMDC’s main domestic

customers are Rashtriya Ispat Nigam Limited (RINL) (Vizag Steel Plant), Welspun

Maxsteel, Essar Steel Limited, Ispat Industries Limited, Kudremukh Iron Ore Company

Limited (KIOCL) and JSW Steel Limited (JSW). Its key customers account for 85-90% of

its domestic iron ore sales. In Chhattisgarh, 2-3mtpa of its iron ore production is

reserved for local steel and sponge iron producers.

Contribution of exports to revenue has declined

Source: Company/MOSL

3 July 2012

NMDC

Key customer locations

Other operations

Wind power plant:

NMDC operates a wind power plant that has 7 towers with an

aggregate capacity of 10.5MW. It is located at Chitradurga, Karnataka, about 995

meters above sea level on hilly terrain. The property is on lease from Karnataka

Renewable Energy Development Limited. All the electricity generated by the

wind farm is sold to Bangalore Electricity Supply Company (“BESCOM”), as per the

power purchase agreement (PPA) dated 25 July 2009 for an initial term of 20 years.



Diamond mine:

NMDC has diamond mining operations at Panna, Madhya Pradesh.

Activities were suspended for almost four years from August 2005, as the area in

which this mine was operating was declared a wildlife sanctuary. However, the

Supreme Court order dated 1 May 2009 permitted NMDC to re-start its diamond

mining operations.



Sponge iron:

In FY11, Sponge Iron India Limited was merged with NMDC. Its 60ktpa

sponge iron facility is located in Paloncha, Andhra Pradesh.



3 July 2012

NMDC

Financials and Valuation

Income Statement (Consolidated)

Y/E March

Net sales

Change (%)

Total Expenses

EBITDA

% of Net Sales

EBITDA per ton

Depn. & Amortization

EBIT

Other income

PBT before EO

PBT after EO

Tax

Rate (%)

Reported PAT

Adjusted PAT

Change (%)

2010

62,391

-17.5

18,130

44,261

70.9

1,838

732

43,529

8,617

52,146

17,719

34.0

34,427

-21.3

2011

113,689

82.2

27,260

86,430

76.0

3,284

1,215

85,215

12,057

97,272

32,280

33.2

64,992

88.8

2012

112,615

-0.9

23,334

89,281

79.3

3,270

1,328

87,953

20,169

108,123

34,941

32.3

73,182

12.6

2013E

129,650

15.1

27,448

102,202

78.8

3,559

1,368

100,834

23,322

124,155

42,213

34.0

81,942

12.0

(INR Million)

2014E

155,751

20.1

31,637

124,113

79.7

3,602

1,510

122,603

25,190

147,793

50,250

34.0

97,543

19.0

Balance Sheet

Y/E March

Share Capital

Reserves

Share holders funds

Loans

Defferred tax liability (net)

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Inventories

Sundry Debtors

Cash and Bank

Loans and Advances

Curr. Liability & Prov.

Sundry Creditors

Other Liabilities & prov.

Net Current Assets

Application of Funds

E: MOSL Estimates

2010

3,965

138,760

142,724

849

143,573

17,711

9,840

7,872

5,561

761

142,636

2,988

4,270

128,549

6,829

13,477

7,525

5,952

129,160

143,573

2011

3,965

188,181

192,145

1,029

193,174

22,730

11,740

10,990

6,774

1,357

191,716

4,154

4,854

172,281

10,427

17,807

7,719

10,088

173,908

193,174

2012

3,965

240,488

244,453

1,029

245,482

26,730

13,068

13,662

17,774

1,357

230,345

3,702

10,799

205,418

10,427

17,802

7,713

10,088

212,544

245,482

2013E

3,965

296,918

300,882

1,029

301,911

30,730

14,436

16,294

42,762

1,357

260,323

4,262

12,432

233,201

10,427

18,969

8,880

10,088

241,354

301,911

(INR Million)

2014E

3,965

364,309

368,274

1,029

369,303

34,730

15,946

18,784

86,398

1,357

283,375

5,121

14,935

252,893

10,427

20,756

10,668

10,088

262,619

369,303

3 July 2012

NMDC

Financials and Valuation

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/EBITDA

Dividend Yield (%)

EV/ton

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Debtor (Days)

Inventory (Days)

Creditors (Days)

Leverage Ratio (x)

Current Ratio

Debt/Equity

2010

8.7

8.9

35.9

1.7

23.6

2011

16.4

16.7

48.4

3.3

23.6

2012

18.5

18.8

61.6

4.5

28.5

2013E

20.7

21.0

75.9

5.5

31.1

2014E

24.6

25.0

92.9

6.5

30.9

10.6

10.4

3.2

6.4

2.3

9.5

9.3

2.6

5.3

2.8

8.0

7.8

2.1

4.2

3.3

30.2

30.0

270.8

29.7

29.5

406.1

31.7

31.5

348.6

28.5

28.4

278.7

26.8

26.7

278.5

3.5

0.4

5.0

0.6

4.2

0.5

4.2

0.4

4.5

0.4

10.6

-0.9

10.8

-0.9

12.9

-0.8

13.7

-0.8

13.7

-0.7

Cashflow Statement

Y/E March

Pre-tax profit

Depreciation

(Inc)/Dec in Wkg. Cap.

Tax paid

Other operating activities

CF from Op. Activity

(Inc)/Dec in FA + CWIP

(Pur)/Sale of Investments

CF from Inv. Activity

Dividend (incl. tax)

CF from Fin. Activity

(Inc)/Dec in Cash

Add: opening Balance

Closing Balance

E: MOSL Estimates

2010

52,146

614

8,056

-17,332

-71

43,414

-4,098

-46

-4,144

-8,117

31,153

97,397

128,549

2011

97,272

1,900

-1,018

-32,280

-9

65,866

-6,232

-595

-6,827

-15,307

43,731

128,549

172,281

2012

108,123

1,328

-5,498

-34,941

69,011

-15,000

-20,874

33,137

172,281

205,418

2013E

124,155

1,368

-1,027

-42,213

82,284

-28,987

-25,513

27,784

205,418

233,201

(INR Million)

2014E

147,793

1,510

-1,573

-50,250

97,480

-47,637

-30,152

19,692

233,201

252,893

3 July 2012

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