NMDC Ltd's volume performance continues to impress with 30.5mt in FY14, +16% y-o-y, and consensus should see upgrades on strong volume performance to drive a rerating. Maintain outperform. Our 12-month price target of R188 is based on a PER methodology. Catalyst are earnings upgrade and volume upside.
The price cut by private miners follows a reduction of R200/t in mid-March for iron ore lumps. NMDC might follow suit and take a cut for lumps by R200/t or so. However, it might hold on to iron ore fines prices as the start of a slurry pipeline has eased inventory build-up. Pellet prices are on a downhill trend and corrected 12% in the last three months due to a 5% export tax, rupee rise and higher supply from new capacity.
After six years of stagnant volume, NMDC has seen a 16% y-o-y volume growth in FY14 at 30.5mt. With the benefits of the restarted slurry pipeline (+3-4mt), commissioning of 7mtpa 11B mine, in-motion weigh bridge and Uniflow railway line, we expect a 34mt volume in FY15E with 1-2mt upside risk. +1mt impacts EPS by 3%.