NMDC's strong sales cheer Street

The iron ore miner, with a strong balance sheet, remains a good investment

The production and sales numbers posted by NMDC till August has restored the Street’s confidence in the iron ore mining entity. This is also reflecting in its share price, at 52-week highs over the past two trading sessions. It, however, gave up some of its gains on Thursday, ending 2.1 per cent down to Rs 112.

The company on Wednesday announced its iron ore sales volume was 12.9 million tonnes during April-August, up 14.7 per cent over the first five months in FY16. Output at 11.7 mt was up 11.1 per cent over the corresponding year-ago period.

The government-owned company has also had better earnings. It had reported better than expected numbers for the June quarter, which analysts say is led by good pricing in exports. Iron ore realisations were Rs 2,191 a tonne, recovering sharply on a sequential basis from Rs 1,744 a tonne in the March quarter. The export incentive for the company’s low-grade ore is having a positive impact, feel analysts. Export duty on ore fines with iron content below 58 per cent had been reduced from 10 per cent to nil; that on ore lumps with iron content below 58 per cent was brought down to nil, from the earlier 30 per cent, in the Union Budget.

Home prices are also stabilising. NMDC had taken price hikes in March-April for its products, as international prices of ore rebounded to about $70 a tonne in April from sub-$40 earlier. However, the price remained volatile after and NMDC had cut these in subsequent months, as ore prices (62 per cent iron grade, ex-China) fell from $70.46 a tonne (dry) in April to $48.13 a tonne in June. It has since rebounded to $60-plus.

This has helped NMDC maintain ore prices in August, providing comfort to the Street. Pallav Agarwal at Antique Stock Broking says domestic ore prices are expected to have bottomed out, considering the improved domestic steel outlook after imposition of anti-dumping duties and the Minimum Import Price extension. NMDC’s fines’ prices are already at a significant discount of 50 per cent to international ones, reducing the possibility of further price reductions, he adds. In fact, after the price hikes by MOIL for manganese ore, on expectation of better steel demand, the chances of a price increase by NMDC have also risen. The price rises taken by domestic steel players also bode well for iron ore prices and so does the optimism on improved steel demand in the second half of FY17.

In this backdrop of limited downside for iron ore realisations and improving volumes, the NMDC stock has outperformed the S&P BSE Sensex. Analysts say with the improving business outlook and strong balance sheet, the stock should do well and remains a safe bet for long-term investors.