Company Report: NMDC: 'Premium valuations unjustified' – SELL
CMP Rs274, Target Rs236, Downside 14%
We expect the tight market condition in iron ore to ease off in H1 '11 on the back of higher supplies from Australia and cooling off of steel production in China . However, its impact on NMDC would be lower as most of the sales are done in the domestic market, wherein it is already selling at a discount to global peers. Volume growth remains curtailed over the next two years as it is impacted by Maoist activities in the Chhattisgarh region. In FY12, we expect volumes of 29mn tons (lower than mgmt guidance of 30mn tons) and 33mn tons in FY13 with higher contribution from the new Karnataka mines. The government has levied a 10% royalty and 20% export duty 20% on ad valorem basis on iron ore. Railways have also increased the freight on iron ore meant for exports by 3x and have further announced the levy of 'busy season charge' of 7% freight rates. On account of these factors, we believe NMDC would reduce its exports going ahead. NMDC is trading at 8.2x FY12 EV/EBIDTA, which is at a huge premium to its peers (5.1x FY12). While we believe that NMDC should trade at a premium to its peers considering the high quality reserves and the low cost operations, the current high premium is not justified. We maintain our SELL rating on the stock with a 9-month price target of Rs236.
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Trading Idea - Havells: 'Electrifying gains' – BUY
CMP Rs427, Target Rs520, Upside 19.4%
Havells last week, rebounded sharply from its 200-DMA with higher-than-average volumes, which is likely to act as a strong support on any declines. On Tuesday, it managed to breakout its recent peak, exhibiting strength on the medium term charts.
We recommend medium term traders to buy the stock at current levels and on declines with a stop loss of Rs385 for a target of Rs510 and Rs520.
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