Good collection of data and I agree with the analytical approach in general. Thank you for sharing. Moreover, I agree that the years 2016 to 2020 are a more reasonable (perhaps slightly conservative) baseline.
But I would like to point out a couple of things. Firstly the production of iron ore by NMDC has been growing (by fits and starts but growing nevertheless): from an average of about 335 lakh tonnes per annum during the three year period upto Mar18 to an average of 374 lakh tonnes per annum during the three year period upto Mar23, thereby implying a volume growth of 2.2% CAGR. NMDC has just yesterday reported increased production numbers but its not clear if that is sustainable. I would feel comfortable assuming volume of 400 LTPA on average during the next three years and given the increased production this quarter, would consider it a conservative estimate. Secondly, I think we should do an adjustment for inflation for the price of iron ore. So while the average price of iron ore during 2016-2020 was about 3000 per tonne, doing an inflation adjustment of 5% CAGR should imply an average revenue per tonne of about 4200 per tonne during the next three years. If I use the rest of assumptions as it is (namely royalty of ~47% of revenue, Opex of ~14% of revenue, 30% tax, 30% dividend payout, 5% dividend yield) I get a valuation of about Rs 138 per share which seems like a conservative valuation to me.
Put differently, my baseline forecast for the next three years is PAT of ~4600 crores per annum on revenues of ~16800 crores per annum. Even if we completely exclude the cash on hand (which is > 25% of the current market cap), then the valuation of 138/- per share still implies a multiple of < 9x on the baseline EPS of ~ Rs 15.70 per annum over the next three years. Note that this valuation also excludes any potential upside from investments made towards Lithium mining in Australia or the recent news on Gold mining in Andhra.
Would love to hear other views and/or points I might have missed.
Disclosure: Invested.
| Subscribe To Our Free Newsletter |
