By Rohit Sadaka

India Ratings and Research (Ind-Ra) has affirmed NMDC Limited’s Long-Term Issuer Rating at ‘IND AAA’. The Outlook is Stable. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Fund-based limits*

-

-

-

INR0.5 (reduced from INR10)

IND AAA/Stable/IND A1+

Assigned

Non-fund-based limits

-

-

-

INR17 (increased from INR7.5)

IND AAA/Stable/IND A1+

Affirmed

Non-fund-based limits*

-

-

-

INR7.5

IND AAA/Stable/IND A1+

Assigned

*The final rating has been assigned upon the receipt of bank sanction letter.

KEY RATING DRIVERS

Improvement in Financial Performance: Revenue grew 30% yoy to INR77.3 billion in 9MFY18 (FY17:  INR88.28 billion, FY16: INR64.56 billion) due to a 31.6% yoy surge in realisation to INR2,992.5 per metric tonne (mt), partially offset by a 1% yoy decline in sales volume to 25.54 million mt. Consequently, EBITDAR grew 46% yoy to INR39.08 billion in 9MFY18 (FY17: INR35.9 billion, FY16: INR27.4 billion), while EBITDAR margin increased to 50.5% (9MFY17: 44.8%, FY17: 40.7%, FY16: 42.5%). EBITDAR per tonne increased by INR498 to INR1,530 in 9MFY18 and INR58 to INR1,009 in FY17. The surge in realisation was supported by a higher demand in the steel industry as well as supply constraints  due to regulatory issues. NMDC had a net cash position in 9MFY18 and FY17. 

Sustained Robust Liquidity:
At FYE17, NMDC had cash and cash equivalents of INR48.75 billion (FYE16: INR110 billion), despite a reduction in cash used for buy back of shares in FY17. Although the company utilised INR75.28 billion to buy back 20% of the equity, its ability to generate cash remains strong and is reflected in its high operating profitability levels of 39%-59%. The company also has a sanctioned fund-based facility of INR1.0 billion, which has remained unutilised till date. 

Ind-Ra expects NMDC’s liquidity to remain robust over FY19-FY20, backed by high free cash generation and sufficient-to-fund moderate capex plan. However, a significantly high outflow by way of dividends or otherwise leading to a reduction in free cash availability may negatively impact the ratings.

PSU Status:
NMDC, as a public sector undertaking (PSU) is eligible for preferential treatment under the Amended The Mines and Minerals (Development and Regulation) Act, 2015. This will enable renewal of its existing mining licences, which are set to expire in March 2020, as well as allotment of the planned new mines (under joint venture with state PSU miners in Chhattisgarh and Jharkhand). The Act provides special powers to the government to allocate mines and renew mining licences of PSUs. 


Over 30 Years of Reserves in Existing Mines: 
NMDC has a resource of 1,619.69 million mt across five mines in Chhattisgarh and two mines in Karnataka. The Fe grade of these mines is in the range of 62.6%-67.7%, which is among the highest grades of iron ore mines. At the current extraction capacity of around 34 million mt, the visibility is for more than 30 years. All the mining licences of NMDC are valid, providing significant advantage in the highly regulated mining industry, where private miners can suffer stoppage of operations due to lack of a valid licence or clearance. The license of five mines in Chhattisgarh is  valid up to March 2020, while in Karnataka, the license of mines in Donimalai is valid up to November 2028 and Kumarswami up to October 2022.

Delay in Steel Plant Sale, but No Additional Debt to be Raised in FY19:
NMDC is setting up a 3 million metric tonne capacity integrated steel plant at an estimated cost of INR225 billion (including township, contingency and working capital margin). Although NMDC had the approval to sell the steel plant during the construction period; it could not sell it until FY18. Any delay in selling or hiving off the steel plant may not result in a significant increase in debt levels, as the company is likely to commence operations in 3QFY19 and the cost is entirely funded by internal accruals. Further, with the improvement in the steel demand, NMDC is likely to break even in FY20, thereby not impacting its profitability and credit profile.


RATING SENSITIVITIES

Negative: Higher-than-expected debt-led capex and/or deterioration in free cash leading to a significant increase in net leverage above 1x on a sustained basis would be negative for the ratings. Furthermore, regulatory intervention leading to the non-renewal of mining lease or loss of the PSU status would be negative for the ratings.


COMPANY PROFILE

Listed on the Bombay Stock Exchange and National Stock Exchange, NMDC is a PSU engaged in the mining of iron ore. 

FINANCIAL SUMMARY
 

Particulars

FY17

FY16

Net revenue (INR billion)

88.28

64.56

EBITDAR (INR billion)

35.95

27.42

EBITDAR margin (%)

40.7

42.5

EBITDAR interest coverage (x)

173

41.8

Gross adjusted leverage (x)

-

0.5

Source: NMDC, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating/Outlook

29 December 2016

Issuer rating

Long-term

-

IND AAA/Stable

IND AAA/Stable

Fund-based limits

Long-term/Short-term

INR0.5

IND AAA/Stable/IND A1+

Provisional IND AAA/Stable/Provisional IND A1+

Non-fund-based limits

Long-term/Short-term

INR24.5

IND AAA/Stable/IND A1+

IND AAA/Stable/IND A1+


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Rohit Sadaka

    Director
    India Ratings and Research Pvt Ltd Room No. 1201, 12th Floor Om Towers 32, Chowringhee Road Kolkata 700 071
    +91 33 40302503

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121