NMDC Limited Brief Stock Analysis Report

20th September, 2016

Basic Filtering Criteria:

	(Rs. Crore/ Rs. 10 million)	Minimum Required	Actual
1	Turnover	1000	12,356
2	Market Capitalization	1000	40,202
3	Price to Earnings Ratio	Less than 10	6.38 (based on FY 2014-15)
4	Price to Book Value	Less than 1.5	1.37
5	Dividend Yield	4-5%	10.78%

PE Ratio has recently crossed 10 based on current year quarterly returns on the back of:

• Fall in EPS owing to recent steep fall in commodity prices and
• Recent rise in share prices and stock indices

A. Company Performance:

Profitability Analysis:

We are in possession and have analyzed company’s financial statements for 12 years. Owing to space constraint we present here in this brief company report five-year data as follows:

(Rs. Crore/ Rs. 10 million)	March 31' 2011	March 31' 2012	March 31' 2013	March 31' 2014	March 31' 2015
Net Sales	11,360.96	11,261.89	10,704.27	12,058.20	12,356.41
All expenses other than finance cost, including depreciation	2,844.24	2,465.90	3,467.59	4,435.39	4,740.29
EBDITA (Operating Profits)	8638.24	8926.16	7375.20	7773.22	7778.35
EBDITA (Operating Profits) %	76.03%	79.26%	68.90%	64.46%	62.95%
Depreciation	121.52	130.17	138.52	150.41	162.23
EBITA	8516.72	8795.99	7236.68	7622.81	7616.12
EBITA %	74.96%	78.10%	67.61%	63.22%	61.64%
Interest (Operating/ Relating to Business)	0.00	1.48	13.20	1.85	0.00
Interest Cost to Sales - %	0.00%	0.01%	0.12%	0.02%	0.00%
EBT	8516.72	8794.51	7223.48	7620.96	7616.12
EBT %	74.96%	78.09%	67.48%	63.20%	61.64%
Net Non-Operating Income	1213.68	1965.19	2238.87	2140.00	2152.39
PBDIT	9851.92	10891.35	9614.07	9913.22	9930.74
FINAL PBT	9730.40	10759.70	9462.35	9760.96	9768.51
FINAL PBT %	85.65%	95.54%	88.40%	80.95%	79.06%
Income Tax	3227.95	3494.15	3121.85	3339.72	3346.21
PAT	6502.45	7265.55	6340.50	6421.24	6422.30
PAT %	57.24%	64.51%	59.23%	53.25%	51.98%

Highlights:

• Very high and healthy EBDITA, EBT and PAT Margins.
• Negligible interest costs

On this parameter the company’s performance is highly satisfactory

Balance Sheet Analysis:

(Rs. Crore/ Rs. 10 million)	March 31' 2011	March 31' 2012	March 31' 2013	March 31' 2014	March 31' 2015
Total Assets	21,098.12	26,648.44	30,894.29	31,476.92	34,469.84
Tangible Net Worth	19,200.07	24,328.56	27,428.90	29,917.52	32,241.19
Net Working Capital	17,390.84	21,093.54	22,357.37	22,520.37	21,900.76
Current Assets	19,171.56	23,198.67	25,593.05	23,861.19	23,889.76
Current Liabilities	1,780.72	2,105.13	3,235.68	1,340.82	1,989.00
Current Ratio	10.77	11.02	7.91	17.80	12.01
Quick Assets	17,713.46	21,001.60	22,107.96	20,105.65	20,195.47
Quick Ratio	9.95	9.98	6.83	15.00	10.15
Total Outside Liabilities/ Tangible Net Worth (TOL/ TNW)	0.10	0.09	0.12	0.05	0.07
Total Term Liabilities/Tangible Net Worth (TTL/ TNW)	0.01	0.01	0.01	0.00	0.00
Total Liability	21,098.12	26,648.44	30,894.29	31,476.92	34,469.84

Highlights:

• Very high current and quick ratios ensuring rock solid liquidity position of the company.
• Extremely Low numbers of TOL/ TNW and TTL/ TNW
• Absolutely no debts on the balance sheet either short term or long term
• High cash or cash equivalents – NMDC is sitting on a large pile of cash – Rs.46.52 per share out of the current market price of the share at about Rs.100.

On this parameter the company’s performance is highly satisfactory

Cash Flow Analysis:

NMDC Ltd.	March 31' 2012	March 31' 2013	March 31' 2014	March 31' 2015
(Rs. Crore/ Rs. 10 million)
Net Cash Flows from Operating Activities	4594.58	3087.07	3733.52	3999.14
Net Cash Flows from Investing Activities	-737.23	668.63	3443.58	1699.75
Cash Flows From Financing Activities:
Dividends	-1645.46	-2180.59	-4955.90	-2874.42
Tax on Dividends	-265.39	-353.74	-842.25	-574.71
Others	-1.59	-13.39	-2.55	-0.31
Total Net Cash Flows from Financing Activities	-1912.44	-2547.72	-5800.70	-3449.44
Total Increase in Cash During the year	1944.91	1207.98	1376.40	2249.45
Percentage of Cash from Operations Distributed as Dividends	41.59%	82.09%	155.30%	86.25%
Cash and Cash Equivalents at Beginning of the year	4306.17	3098.19	4306.66	5683.06
Cash and Cash Equivalents at the end of the year	6251.08	4306.17	5683.06	7932.51

Highlights:

• Company is generating net operating cash flows of around Rs.4000 crores every year.
• On an average about 88% of the free cash flows are distributed as dividends were distributed as dividends.
• Even after distributing a large portion of free cash flows in the form of dividends, company is adding about Rs.2000 crores to already heavy balance of cash every year. 

On this parameter the company’s performance is highly satisfactory

Dividend Track Record

Year	Dividend (%)
2016	1100
2015	855
2014	850
2013	700
2012	450
2011	330
2010	175
2009	221
2008	331
2007	352
2006	276.6
2005	114.5
2004	35
2003	30
2002	25
2001	25
2000	25
1999	25
1998	25
1997	25
1996	20
1995	20
1994	20

Highlights:

• Company has paid uninterrupted dividends at least for the last 23 years
• In the last four years especially the company had paid dividends at very handsome rates.

On this parameter the company’s performance is highly satisfactory.

Dividend Coverage from non-operating income

Dividend	876.20	693.82	1308.35	1784.12	2775.30	4955.00	2874.00
Net Non-Operating Income	888.88	871.26	1213.68	1965.19	2238.87	2140.00	2152.39
Dividend Coverage from Non-Operating Income	101.45%	125.57%	92.76%	110.15%	80.67%	43.19%	74.89%

The above table shows that about 75% of the dividends distributed by the company come out of non-operating income itself. In other words, even if the company fails to earn any profits, still it could continue to pay 75% of what dividends it is currently paying.

On this parameter the company’s performance is highly satisfactory.

B.Market Condition:

Price to Earnings Ratio:

At the current market price of Rs.103.30 and Earnings Per Share (EPS) based on the audited financial statements of financial year 2014-15 the PE Ratio is 6.38, well below the recommended 10. However based on provisional numbers of FY 2015-16 the EPS has deteriorated to 6.88 on account of steep fall in commodity prices globally and therefore the PE Ratio has climbed to 14.85. For the quarter ended June 2016, the EPS is 2.55. If we annualize it, for the whole of the financial year 2016-17, EPS could be 10.13, very near the recommended 10.

The market condition as far is this parameter is concerned is not favorable.

Price to Book Value per Share:

With a book value of Rs.75.56 for the financial year 2015-16 and a price of Rs.103.30, the price to book ratio still stands below the recommended maximum of 1.5, at Rs.1.37.

On this parameter the market condition is still favorable.

Dividend Yield:

We have already seen that NMDC Ltd. pays handsome dividends. Combined with reasonable market price the dividend yield is a highly attractive 10.78% post tax, at a maximum tax rate of 33.33%, this dividend will translate into a yield of 16.16%.

Which financial instrument today can put such an attractive sum of cash in an investor’s pocket?

On this parameter the market condition is highly favorable

Distance from 52 week high:

The 52-week low for this share is Rs.75.15. and the distance to 52-weel high is 11.48%. After the recent gain in the share price of 11.02% in the last quarter and the CMP standing at 103.30, the share today is available at +37.45% from the 52-week low. However on 15^th January 2016 the CMP was Rs.89.10 and the 52-week low was Rs.123.05. At that level the price was trading at a discount 27.59%.

The market condition as far is this parameter is concerned is not favorable.

Five year Return:

The five-year return (return measured by change in share price) is -58.78%. Which means that today’s CMP of the scrip is 58.78% lower than at what price it was trading five years back. Which also indicates that if we buy at current price, the share has the potential to gain at least Rs.150 from today, if not more.

On this parameter the market condition is still favorable.

C. Conclusion:

1. NMDC Ltd. is a wonderful company.
2. Global commodity prices have fallen to ridiculous levels and had impacted many commodity companies including NMDC. However the prices have stabilized.
3. Though lower compared to earlier years, the EBDITA, EBT and PAT margins are still very healthy.
4. Company has been generating free cash flows for many years and we can expect it to do so for many years to come.
5. The company has an excellent dividend paying track record. The dividend yield too is enviable.
6. PE Ratio has crossed the recommended maximum of 10, but we expect it to come down to below 10 based on robust EPS, even though price may increase.
7. Price to Book Value is still in comfort zone.
8. Price has crossed the 52-week low and in the positive territory which is not very favorable for buying.
9. Five-year returns are still in the negative zone which mean the stock can be purchased and there is very good scope for price gains.
10. Finally, despite a few negative market conditions, there is still scope for value investors to purchase this stock at the current price.