Event Update | Mining

February 16, 2012

NMDC
NMDC cuts prices; lowers volume guidance
NMDC cuts iron ore prices: NMDC has cut prices of iron ore fines and lumps by 20% and 3%, respectively for 4QFY2012 on the back of decline in global iron prices (-18% over the past five months), the recent rupee appreciation (7.5% since January 1, 2012) and increase in export duty on iron ore (from 20% to 30% effective January 1, 2012). The price cut by NMDC is higher than our expectations given the shortage of iron ore in the domestic markets (especially iron ore lumps) on the back of mining ban in Karnataka region and governments stricter stance on illegal mining in other regions such as Goa and Orissa. Volume guidance also lowered: NMDC has also lowered its sales volume guidance for FY2012 and FY2013. It now expects sales volumes of 27mn tonnes and 30mn tonnes (earlier 30 mn tonnes and 33mn tonnes) for FY2012 and FY2013, respectively. Although the company has ~5mn tonnes of iron ore inventory at its mine pit-heads, however, it faces logistical constraints to increase offtake due to break-down in slurry pipeline, lower availability of railway rakes and stricter regulations in transportation of iron ore in Karnataka. Capex update: NMDC has planned to incur capex of `1,350cr and `2,500cr during FY2012 and FY2013, respectively. Majority of this capex will be spent towards setting up the Chhattisgarh steel plant. Estimates lowered to factor in price cuts and volume guidance: We lower our 4QFY2012 and FY2013 realization and sales volume estimates to factor in the latest guidance by NMDC.

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Mining 79,116 0.9 305/136 72,927 1 18,202 5,532 NMDC.BO NMDC@IN

`200 -

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 90.0 8.4 0.8 0.9

Abs. (%)

3m 7.8

1yr (0.4)

3yr 88.9 (0.4)

Revision of estimates
Earlier estimates FY12E Sales vol. (mn tonnes) Avg. real. (`/tonne) Net sales (` cr) EBITDA (` cr) EBITDA margin (%) PBT (` cr) Net income (` cr) Net margin (%) 28 4,190 11,732 9,319 79.4 11,189 7,497 63.9 FY13E 32 4,182 13,163 10,388 78.9 12,507 8,380 63.7 Revised estimates Upgrade/(downgrade) FY12E 27 4,115 11,190 8,889 79.4 10,673 7,151 63.9 FY13E 29 3,994 11,726 9,208 78.5 11,096 7,435 63.4 FY12E (3.6) (1.8) (4.6) (4.6) 1bp (4.6) (4.6) 0bp FY13E (8.9) (4.5) (10.9) (11.4) (39)bp (11.3) (11.3) (26)bp

Sensex NMDC

(6.3) (27.2)

Source: Bloomberg, Angel Research

Outlook and valuation: NMDC has a strong balance sheet, presence in sellers market (iron ore), low cost of production, high-grade mines and long mine life. However, we now expect sales volumes to grow at a CAGR of only 5.2% over FY2011-2013. On account of lower volume growth and lower realizations, NMDCs bottom-line is expected to grow by only 4.0% yoy during FY2013. Further, given the 23% rise in stock price since January 1, 2012, we recommend Neutral on the stock.
Please refer to important disclosures at the end of this report

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 bhaveshu.chauhan@angelbroking.com

NMDC | Event Update

Exhibit 1: Recommendation summary

Companies CMP Sesa Goa NMDC Coal India MOIL Target Reco. Mcap Upside (` cr) (%) P/E (x) FY12E FY13E P/BV (x) FY12E FY13E EV/EBITDA (x) FY12E 3.2 FY13E 3.0 RoE (%) FY12E 22.3 FY13E 22.5 RoCE (%) FY12E 21.2 FY13E 13.3 (`) price (`)

252 200 321 271

- Neutral - Neutral - Neutral

21,940 79,116 4,549

7.0 11.1 13.0 11.1

5.7 10.6 12.6 11.0

1.4 3.2 4.5 1.9

1.2 2.6 3.5 1.7

6.5 8.4 5.5

5.9 7.8 5.4

32.6 39.7 17.9

27.0 31.4 16.1

39.7 36.6 18.5

32.8 28.5 16.4

- Neutral 202,755

Source: Company, Angel Research

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NMDC | Event Update

Profit & loss statement

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income Recurring PBT % chg Extraordinary Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 5,711 5,711 36.4 1,374 145 356 874 4,337 34.5 75.9 60 4,277 36.1 74.9 671 4,947 41.4 4,947 1,696 34.3 3,251 3,251 40.1 56.9 8.2 8.2 40.1 7,564 7,564 32.4 1,726 86 421 1,219 5,838 34.6 77.2 74 5,764 34.8 76.2 884 6,648 34.4 6,648 2,276 34.2 4,372 4,372 34.5 57.8 11.0 11.0 34.5 6,239 6,239 (17.5) 1,817 211 420 1,186 4,422 (24.2) 70.9 73 4,349 (24.6) 69.7 862 5,211 (21.6) 5,211 1,760 33.8 3,451 3,451 (21.1) 55.3 8.7 8.7 (21.1) 11,369 11,369 82.2 2,722 123 492 2,107 8,646 95.5 76.1 125 8,521 95.9 75.0 1,206 9,727 86.7 9,727 3,228 33.2 6,499 6,499 88.3 57.2 16.4 16.4 88.3 11,190 11,190 (1.6) 2,301 252 470 1,579 8,889 2.8 79.4 130 8,760 2.8 78.3 1,914 10,673 9.7 10,673 3,522 33.0 7,151 7,151 10.0 63.9 18.0 18.0 10.0 11,726 11,726 4.8 2,518 300 493 1,726 9,208 3.6 78.5 129 9,079 3.7 77.4 2,017 11,096 4.0 11,096 3,662 33.0 7,435 7,435 4.0 63.4 18.8 18.8 4.0

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NMDC | Event Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,421 853 568 112 83 8,283 7,199 244 840 775 7,508 25 8,296 1,669 923 747 248 72 11,771 9,740 403 1,628 1,165 10,606 22 11,695 1,771 984 787 556 76 14,264 12,855 519 890 1,348 12,916 22 14,357 2,273 1,174 1,099 677 136 19,172 17,228 1,043 901 1,781 17,391 14 19,317 3,373 1,303 2,069 880 136 23,413 21,542 1,043 829 1,718 21,695 14 24,795 4,573 1,432 3,140 2,201 136 26,749 24,821 1,043 885 1,750 24,999 14 30,490 132 8,157 8,290 6 8,296 396 11,240 11,637 58 11,695 396 13,876 14,272 85 14,357 396 18,818 19,215 103 19,317 396 24,296 24,692 103 24,795 396 29,991 30,387 103 30,490 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

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NMDC | Event Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Others Direct taxes paid Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 4,947 60 (661) (105) (1,765) 2,476 (123) 640 517 (643) (643) 2,350 4,849 7,199 6,648 74 (785) (866) (2,292) 2,778 (389) 880 491 (728) (728) 2,541 7,199 9,740 5,207 73 926 (832) (1,770) 3,604 (422) 828 407 (895) (895) 3,115 9,740 12,855 9,727 122 (525) (1,143) (3,319) 4,861 (517) 1,022 506 (853) (142) (994) 4,373 12,855 17,228 10,673 130 9 (3,522) 7,290 (1,303) (1,303) (1,673) (1,673) 4,314 17,228 21,542 11,096 129 (24) (3,662) 7,540 (2,520) (2,520) (1,740) (1,740) 3,280 21,542 24,821

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NMDC | Event Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio (%) Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) (0.9) (1.7) (0.8) (1.7) (0.9) (2.9) (0.9) (2.0) (0.9) (2.4) (0.8) (2.7) 4.2 44 31 61 23 4.9 64 50 81 33 3.6 60 25 105 34 5.6 56 16 54 11 4.0 56 16 54 16 3.0 56 16 54 16 60.6 505.3 46.1 57.7 454.4 43.9 33.4 347.9 26.6 50.6 795.9 38.8 39.7 498.6 32.6 32.8 326.1 27.0 74.9 65.7 6.0 293.1 76.2 65.8 5.2 261.7 69.7 66.2 3.8 174.0 75.0 66.8 6.7 336.9 78.3 67.0 4.4 231.5 77.4 67.0 2.7 140.6 8.2 8.2 8.4 4.9 20.9 11.0 11.0 11.2 2.2 29.4 8.7 8.7 8.9 2.0 36.0 16.4 16.4 16.7 3.2 48.5 18.0 18.0 18.4 3.6 62.3 18.8 18.8 19.1 3.8 76.6 24.3 23.9 9.5 2.5 12.6 16.6 8.7 18.1 17.8 6.8 1.1 9.2 11.9 5.9 22.9 22.5 5.5 1.0 10.6 15.0 4.6 12.2 11.9 4.1 1.6 5.4 7.1 3.2 11.1 10.9 3.2 1.8 5.1 6.5 2.3 10.6 10.5 2.6 1.9 4.6 5.9 1.8 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

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NMDC | Event Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

NMDC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 16, 2012