Why NMDC Has Analysts Split On Growth Outlook
Here is a look at what brokerages have to say.
NMDC Ltd. has been placed on Citi's 90-day downside catalyst watch, even as other brokerages are optimistic on its profitability and steel demand outlook. While some analysts are positive on pricing, others are cautious as global headwinds persist.
Shares of the iron ore company fell 3.2% on Wednesday at 2:24 p.m., as compared with a 0.58% gain in the benchmark Nifty 50.
Here is a look at what brokerages have to say:
Bull Case
Several brokerages are bullish on NMDC, highlighting its potential for growth and profitability, driven by strategic initiatives, strong demand forecast, and expected improvement in pricing and operational efficiency.
The company is Incred Equities' top pick in the iron ore sector. Despite challenges like falling domestic steel spread and rising Chinese exports, the brokerage predicts a rebound in iron ore prices, driven by stable pellet premium and increasing demand.
Nuvama is optimistic about NMDC’s profitability, as it expects higher realisations from sale of Chhattisgarh’s higher Fe content volume to offset potential volume disruptions. It expects NMDC to sell an additional 4–4.5 million tonne over the next two years, driving earnings growth.
Motilal Oswal Financial Services Ltd. also highlighted NMDC’s strong demand outlook and improved realisations. Price hikes and production ramp-ups in FY25 and FY26 are expected to boost earnings significantly, it said.
The company is well-placed to capitalise on strong volume growth in domestic steel markets over the next few years, given its increased focus on mining business, according to Prabhudas Lilladher Pvt.
With significant capex in store to reach 100 mtpa capacity by FY31, the peak capex is likely at Rs 7,000 crore-Rs 8,000 crore, which is expected to be incurred by FY27/28e, ICICI Securities said.
Neutral Scenario
JM Financial Ltd. has a 'hold' on NMDC. While volume guidance for FY25 remains strong at 50 mtpa and price outlook is positive, the stock is trading at fully-baked valuations of 6.5 EV/Ebitda FY26, it said.
Systematix also sees better domestic demand and pricing outlook for NMDC. However, delays in securing environmental clearance and geopolitical factors causing a downward biased movement in iron ore prices are key risks for the company, it said.
Bear Case
Citi sees imminent price cuts as NMDC has hiked prices by ~11% for fines since mid-March 2024, but global prices are down.
While NMDC’s strong cash balance and free cash flow generation should support its expansion plans, achieving a 12% production CAGR by FY31 seems challenging, according to JPMorgan, as its past growth rates stood at 10% (three years), 7% (five years), and 4% (10 years).
The management of NMDC is optimistic about domestic steel demand, noting that current production levels are falling short of meeting key steelmakers' needs. Therefore, the brokerage expects iron ore prices to remain resilient in the near term.
