In unpredictable circumstances, Financial investors might be in an ideal situation looking for shelter in pockets of safe heaven stocks as opposed to scan for growth based stocks. We are today covering two state-owned companies, who in spite of their frail business viewpoint, have a solid monetary record and generate ample amount of money. They are likewise prone to announce solid profits, because of the corporate tax reductions and to enable the administration to meet its revenue targets, and along these lines are offering dividend yields that can coordinate or are better than rates currently offered by Indian banks fixed deposits.
The two stocks are NMDC (CMP: Rs.64, Market capitalization Rs.19473 Crore) – one of the biggest shipper iron mineral providers in India, currently owned by Government of India (72.3% stake) and Coal India (CMP: Rs.128 and Market capitalization Rs. 79067 crore).
NMDC has one of the biggest iron stores of 2.73 billion tons, is one of the low cost producer of Iron ore, accessible at a very reasonable fair valuation of 0.8x cost to order book and offers dividend yield of around 8%. NMDC has adequate amount of reserves of Rs. 4300Crore (almost 20%) of its market capitalization.
Its expense of creating iron mineral is $12.7 per ton (excluding royalty). The organization has put resources into a steel plant for forward mix at Chhattisgarh. The complete capex for a 3 MTPA plant would associate with Rs. 23140 crore, of which NMDC has acquired Rs.16740 crore till 31st Dec 19.
Total volumes for April-Dec 2019 remained at 22.90 million tons contrasted with 22.12 million tons over a similar period a year ago, notwithstanding Karnataka puuting restrictions mining at its Donimalai mine.
In the wake of expanding the costs of lump ore by Rs. 600/Ton in January and February 2020 and fines by Rs.550/Ton, NMDC marked down costs of both by Rs. 50/Ton on the rear of lower global prices. We expect some weight on costs proceeding till worldwide manufacturing capacity stabilizes.
With extra steel-production limit declared by some significant players, extra necessity of about 64 MT of iron mineral would come up, which NMDC would have the option to supply.
We have considered NMDC’s financials from Mar-07 till Dec-20 and found that just in FY16 did NMDC report an EBIDTA per Ton of Rs. 950. In any event, during the worldwide monetary emergency in FY09 and FY10, NMDC had revealed EBIDTA per Ton of more than Rs 1800.
In FY16, local steel manufacturing witnessed a negative growth and there was dumping from China. Therefore, the legislature forced minimum import parity costs (MIP) on products imported from China and the steel business resuscitated from there on.
On the off chance that we accept that iron mineral costs right in FY21 because of lower request, and NMDC report an EBIDTA of Rs 1000 for every ton, and still, at the end of the day the organization will report an all out EBIDTA of Rs 2880 Crore on a volume of 29 Mln T and mixed acknowledgment of Rs 2300 for each ton. With this degree of income, NMDC will have the option to proclaim profit of Rs 5.30 per share (like FY20) because of its zero debt balance sheet, and solid incomes.
Engineers India Limited
Shareholders will be very happy to know that Engineers India is a zero debt company. Its admirable ROE suggests it is a business worth investing, but it’s even better the company achieved this without leverage. Recently Engineers India Ltd Board declares Interim Dividend of Rs. 3.60 on Feb 2020.
With a market capitalization of approximate ₹46b, Engineers India is a small cap PSU stock, so it might not be well known by various institutional investors. Currently institutional investors own 29% of Engineers India. The second and third largest shareholders are ICICI Prudential Asset Management Company Limited and L&T Investment Management Limited, holding 6.8% and 5.7%, respectively.
Engineers India has very solid order book and a very big pipeline of enquiries and orders which helps us to image clear visibility in terms of revenues and profit.Recently the share price of Engineers India has corrected significantly and is available at reasonable valuations offering 8 percent dividend yield.
COAL INDIA LIMITED
Coal India has recently plunged by more than 50 percent from its 52-week high. In spite of recording lower manufacturing volumes because of an all-inclusive rainy season, as time goes on better force request ought to guarantee that volumes improve. Coal India is the main provider of coal to majority biggest power plants in India.
Coal India Limited recently announced a dividend of Rs. 12 for each share, which means a dividend yield of 9 percent. As of 30th September, CIL had net money available of Rs. 35200 crore, which is around 43% of its market capitalization.
CIL has seen a noteworthy negative rating in the course of the last 2-3 years, notwithstanding its EBITDA having multiplied from FY17 levels. The stock presently exchanges alluringly at ~2.5x EV/EBIDTA dependent on Q3FY20 annualized EBIDTA (v/s authentic normal of 7-8x) and P/E of ~5x dependent on trailing 4 quarters (v/s normal of ~13x).
India keeps on relying upon coal for ~70% of its power prerequisite – with coal-based power generation 54% of the nation’s introduced limit (Coal: 198GW; All India: 369GW). Notwithstanding the expanded spotlight on renewables, coal would keep on ruling India’s power creation. Also, despite the fact that Coal India represents ~83% of household coal creation, it meets just ~69% of the local demand. Consequently, there exists an enormous big opportunity for import substitution.
CIL’s financials from FY07 till Dec2020 show that lower EBIDTA per ton in FY2009 and FY2018 was because of pay unpaid debts paid in FY2009 and climb in tip limit from Rs.10 lakhs to Rs.20 lakhs per representative in FY2018 separately. Altering for the equivalent, EBIDTA is around Rs.250 per ton. Accepting an offtake in FY21 at 600 million tons and acknowledgment and EBIDTA per ton at Rs. 1500 and Rs.250 per ton separately, CIL will have the option to deliver dividend of Rs.10 per share, despite everything making it an appealing dividend yield play.
Indian Public Sector Undertaking Threats and Risks
NMDC Ltd: Indian Import of Steel increases which lead to lower consumption of iron ore Locally.
Engineers India Ltd : Delay in winning and grant of new projects in the hydrocarbon space and lower capex by oil Public Sector Undertakings could derail the growth and earnings future forecast.
Coal India Ltd: Lower coal production or higher wages and salaries to workers and employees can lead to lower profitability and hence lower dividend.