Falling iron prices key worry for NMDC

5 June 2017

Govt. mulls advisory group for NMDC on iron ore pricing NMDC Q3 net profit up 41% to Rs 595 crore on firm iron ore prices NMDC iron ore production up 20% at 34 million tonnes Iron ore prices to remain high NMDC FY17 realisations to take a hit due to iron ore glut

NMDC continues to witness strong volume growth with improving realisations driving its quarterly performance. During the March quarter, the company achieved volumes of 9.8 million tonnes (mt) which were much better than 8.8 mt in the year ago quarter. Similarly, per tonne realisations at Rs 2,841 also improved from Rs 2,403 in the December quarter and Rs 1,658 seen in the year ago quarter.

Thus, the company saw a 88 per cent year-on-year and 15 per cent sequential rise in sales to Rs 2,872 crore. This was also ahead of street expectations as Bloomberg consensus estimates pegged revenues at Rs 2,694 crore.

Operating profit at Rs 1,429 crore also improved over the year ago quarter and was ahead of Rs 1,415 crore estimates pegged by analysts. However, rising employee costs (provisioning for gratuity) led to muted operating profit show on a sequential basis. Per tonne profit at $22 come only marginally higher than $21 though was significantly higher than $9 in the year ago quarter.

The net profit figure was, however, a disappointment as the company reported a number of Rs 511 crore, lower than Rs 595 crore in the previous quarter and just 11.5 per cent growth over year-ago quarter. This was due to one off charges as company has provisioned for mine closure charges, service tax on royalty among others. The concern however stems from the fact that company had made provisions in the previous quarter too.

Analysts at Motilal Oswal securities say that NMDC had recognised charges of Rs 390 crore on account of service tax on royalty, track-laying charges to railways, mine closure and bad debts in the previous quarter, which were one-off in nature. These expenses, however, have continued in 4Q (Rs 450 crore) and till the clarity on the reoccurrence arises they have kept rating for NMDC under review.

The bigger concern is decline in international iron-ore prices which has kept the street cautious. Though after four successive hikes from November-March, the company has continued to maintain prices for its output in April and May, but with decline in international prices it may have to rethink on its domestic pricing. Analysts at Credit Suisse say that all major Odisha miners cut prices by Rs150-300/tonne in May-17 and they believe NMDC may follow suit. Global ore prices have corrected sharply from $95/tonne in February to $61/tonne now. This also increases risks on rising imports which may also have a bearing on NMDC’s exports of low grade ore.

Thus street concerns will remain alleviated in the near-term. The stock prices have already corrected from highs of Rs 152.50 at the start of March to Rs 116 levels now.

Source – business-standard