| Date: |
20-04-2015 |
| Subject: |
See further downside in NMDC, valuations high: Citi |
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State-owned mineral producer NMDC has underperformed the Sensex by 25 percent over the last six months, with the company’s ore pricing too down 25 percent over the same period, says Citi. The brokerage house has a sell rating as it sees more downside to the stock, with target price at Rs 125.
Citi prefers Coal India to NMDC because of better volume trajectory, e-auction support and higher dividend yield.
"Also, NMDC's pricing disconnected from export parity in 2012. This, however, has not insulated NMDC from global trends − NMDC kept prices steady (until October 2014) while global prices continued downward; but loss of market share forced NMDC to cut prices by more than 20 percent over three months," the report says.
Citi expect imports to keep domestic prices in check; with the global team expecting prices at USD 40 through FY16-17 (USD 52 now). It sees NMDC's prices slipping 29 percent in FY16 (11 percent from current levels).
Moreover, due to supply growth, ore prices are expected to fall in the first three quarters of 2015, and slowly rebound in the fourth quarter. Chinese steel demand remains fundamentally weak. Citi sees it improving in the second half of the year on monetary easing and pickup in construction. "Depreciating currencies of major exporters, falling diesel/freight costs are bringing down dollar supply costs; while production remains resilient," the report says.
Excerpts from report:
Imports a threat to market share: With a 40 percent yoy decline in volumes in February 2015 (loss of market share to imports), NMDC's April 2014-February 2015 despatches are flat yoy.
India's imports were 15 million tonne in FY15 (0.4 MT in FY14). Citi is factoring lower prices and expects volume growth at 10 percent in FY16 and 12 percent in FY17.
Source : moneycontrol.com
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