NMDC poised for gains from demand triggers, expansion

NMDC reported a strong standalone revenue at ~5,410 crore, rising 45 per cent year-onyear (Y-O-Y) and 35 per cent quarter-on-quarter (Q-o-q) in line with consensus.

Iron ore sales at about 11.4 million tonnes (MT) grew 18.9 per cent Y-O-Y (19 per cent Q-O-Q). Realisation stood at ~4,679 per tonne, higher by 22 per cent Y-O-Y (12.9 per cent Q-O-Q). The operating profit at ~2,030 crore jumped 77.5 per cent Y-O-Y (70.1 per cent Q-O-Q), which was above consensus. The operating profit for the PSU undertaking was above consensus.

Royalty costs at ~2,320 crore rose by 24.2 per cent Y-O-Y (54 per cent Q-O-Q), due to higher ore production up by 14.6 per cent YO-Y (38 per cent Q-O-Q).

Operating profit per tonne was ~1,781, higher by 49 per cent Y-O-Y (43 per cent Q-O-Q). The reported net profit was ~1,490 crore and adjusted for extraordinary items of ~252 crore, it was ~1,740 crore, higher by 96 per cent Y-O-Y and 69.8 per cent sequentially.

Management said FY24 sales volume guidance of 47 million tonnes is achievable, provided 2.3 mtpa capacity expansion at the Kumaraswamy mine can be completed. The company is awaiting environmental clearance. The 9MFY24 sales volume grew 23.7 per cent Y-O-Y to 32 MT implying that Q4FY24 volume will be 15 MT. This is a record production for NMDC.

The January sales of 4.6 million tonnes was higher by 19 per cent Y-O-Y and 9 per cent M-OM. The blast furnace at NMDC Steel is fully operational. NMDC Steel is expected to break even by Q2FY25. Legally 5-star mines may operate at 110 per cent of rated capacity, which translates to a possible volume of 55 mtpa in FY25 based on current environmental clearance of 50 mtpa.

Realisation will improve further in Q4FY24.

Realisation in Q3 stood at ~4,679 per tonne, aided by two price hikes taken in Q3FY24.

The company has made two further price hikes in Q4FY24 of around ~650/ tonne aggregated. This would push up realisation.

NMDC’S prices are at a historically steep discount to global import parity ore prices.

Capex for capacity expansion can be funded through internal accruals. In 9MFY24, capex was ~1,500 crore with another ~300 crore slated in Q4FY24.

FY25 capex will get enhanced to ~2,100 crore, focused on capacity expansion (67 mtpa by FY25 and 100 mtpa by FY30).

Cash and cash equivalent at the end of FY25 is expected to be at ~12,900 crore hence capex can be funded through internal accruals. The repayment of ~2,200 crore inter-corporate loan to NMDC Steel and receipt of ~1,800 crore balance due from Karnataka SPV monitoring committee could boost cash reserves. A screening plant at Kirandul and a slurry pipeline are expected to be commissioned by FY25.

The pellet plant at Jagdalpur is being enhanced from 2 mtpa to 6 mtpa. Doubling of the Kirandulkothavalasa railway line and a rapid wagon loading system is targeted for completion by the FY24 end. Good operational capacity, excellent net cash position, capacity expansion plans are all positives.

There could be an additional 10 per cent–15 per cent of longterm revenue from non-iron ore segments like gold, magnetite, and lithium mining prospects in Australia. Crude steel production in India was up by 13 per cent Y-OY for 9MFY24.

All steel majors in India are planning to double capacity by FY30-31 with anticipated demand from the government thrust in infrastructure. Analysts are positive on the stock and its listed downstream subsidiary NMDC Steel.