NMDC - Rising Steel Demand, Capacity Expansion To Boost Growth; Reiterates 'Buy' Rating: Motilal Oswal

Motilal Oswal Report

India domestic crude steel capacity reached ~168 million tonne in FY24 with capacity utilization of 82%. This would translate into iron ore demand of ~280 mt during FY24, with NMDC Ltd. holding a market share of about 16%. As crude steel capacity rises to 300 mt by FY30-31, total demand for iron ore would be ~435-445mt. We believe NMDC is well placed to capitalize on the opportunities ahead.

NMDC has planned capex for various evacuation and capacity enhancement projects, which are expected to improve the product mix and increase its production capacity to ~100 million tonne by FY29-30E.

At current market price, NMDC trades at 4.2 times FY27E EV/Ebitda and 1.6x FY27E P/B. We reiterate our Buy rating on the stock with a target price of Rs 290, valued at 5.5x FY27E EV/Ebitda.

Key risks:

1. More than 100 iron ore blocks have been auctioned since FY16; when the remaining captive mines become operational, it would lead to an increase in the supply of iron ore, thus increasing the competition for NMDC;

2. NMDC relies heavily on a few customers, which exposes the company to business risk.

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