NMDC

The largest PSU iron ore explorer, manufacturer and exporter in India, NMDC closed 3% higher yesterday despite most other PSU stocks closing in the red. This sudden spike up in the stock price of NMDC is because the prospects of iron ore are set to improve. The deprecating rupee and increased demand from China, might lead to much better realizations than previously expected. There is a news report stating that over 6 exporters have booked consignments from Paradip and Vizag ports on eastern coast for September delivery to Chinese buyers. These are shipments of pellets and prices of pellets have improved from Rs.6,200/tonne in July to Rs 6,700/tonne currently, showing a rise of 8%. Naturally, with export prospects brightening, realizations improving and rupee depreciating, good tidings seem to be in store for the company.

The company actually did well for Q1Fy14 though the net profit at Rs.1572 crore shows a YoY decline of 17%. This was mainly on account of the 75% rise in operating expenses because this uncluded Rs.66 crore contributed to Special Purpose Vehicle (SPV) as per the Supreme Court directive and this added up in the ‘other expenses’, up 123% (YoY) This apart, the company during the quarter had exports to the tune of 4.92 lakh tonne (Nil in Q1Fy13) and thus selling and freight outward expenses rose from Rs.36 crore to Rs.291 crore. This led to the EBITDA margin coming down from 81% to 66.4%.

NMDC, as part of its forward integration programme and value addition, is setting up a 3 MTPA steel plant at Nagarnar in Chhattisgarh, for which most of the major packages have been finalized and awarded. So far, cumulative orders worth Rs.13,475 crore have already been placed and expenditure of over Rs.2,346 crore has already been incurred. Work on some of the packages have already started and the project is expected to be completed by 2015-16.  For current fiscal, capex of Rs.2720 crore is planned. The company has not given any targets for FY14 but by FY15, it hopes to produce 48 MT of iron ore. The Govt of India holds 80% stake in the company. Needless to say, its reserves and cash balances are huge – reserves at Rs.27,114 crore and cash at Rs.21,392 crore.