NMDC - Volume Growth, Capacity Expansion To Drive Performance: Motilal Oswal

Motilal Oswal Report

NMDC Ltd. is on track to produce ~46 million tonne of iron ore in FY24E (April-November production was up 17% YoY to 27.3 mt). Over FY25, NMDC is likely to surpass a production of 50 mt.

The traction in production volumes would be driven by improved capacity and strong domestic demand.

NMDC is undertaking multiple evacuation and capacity enhancement capex, which are likely to expand the production capacity to 67 mt by FY26-27E from the current 51.8 mt, and eventually to 100 mt by FY28-30E.

Demand is expected to remain robust going forward, as tier-I steel manufacturers are expanding their capacities significantly. This expansion is projected to increase the industry-level crude steel capacity to 300 mt by FY30-31. This would drive the iron ore demand to ~437 mt and we believe NMDC is well placed to capitalise on the growth opportunities ahead.

In line with the recent price hike observed in the international market, due to higher basic oxygen furnace utilisation rates and lower inventory at Chinese ports, NMDC implemented its second price hike in Q3 FY24 resulting in a total increase of Rs 450/tonne.

We believe NMDC is very well placed, given the robust demand, capacity additions, and improvement in iron ore prices. NMDC trades at an enterprise value/Ebitda of five times and a price/book of 1.6 times FY26E.

We roll forward our estimates to FY26 and reiterate our 'Buy' rating on the stock with a revised target price of Rs 210 (premised on six times FY26E EV/Ebitda).

Key risk:

Over 110 iron ore blocks have been auctioned since FY16. Of these ~30 mines are operational. As the remaining captive mines become operational, it would increase the supply of iron ore, thus intensifying the competition for NMDC.

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