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Hold NMDC; target of Rs 125: ICICI Direct

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ICICI Direct's research report on NMDC NMDC has a large reserve base with high grade deposits and significant mine life. As on April 1, 2016, as per UNFC, NMDC’s total iron ore reserve and resource base is 2299.2 MT (average Fe grade of 64.33%). At FY16 production run rate, the company has a mine life of 77 years (reserves: production: 77). A higher mine life coupled with superior quality deposit provide strong earnings visibility. Outlook NMDC reported healthy performance in Q2FY17 on account of healthy sales volumes (higher by 24.6% YoY and 3.8% QoQ). We expect sales volume to grow at a CAGR of 14.1% during FY16-FY18E. Going forward we modelled sales volume of 34 MT for FY17E and 37.5 MT for FY18E. 

We value the stock at 6.5x FY18E EV/EBITDA and arrive at a target price of Rs 125. We have a HOLD recommendation on NMDC.


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