Multiple triggers for NMDC stock

Increase in prices as well as volumes a positive

NMDC has finally been able to take price hikes for its products in October after a gap of four months. With the international prices of iron-ore now back to $55-60 a tonne levels, the company raised prices for lumps at Rs 2,100 per wet metric tonne (wmt) and fines at Rs 1,760 per wmt. These are significantly higher than Rs 1,700 and Rs 1,460 for lumps and fines for September. The stock prices hit 52-week highs on Thursday and Friday before closing at Rs 1,17.45 levels.

With prices revisions, the outlook for NMDC is strengthening. The domestic improvement in realisations bodes well for the company, which is already getting the benefit from higher export realisations. With the government reducing export duty for iron-ore with iron content up to 58 per cent to nil in the Budget, the company has reported realisations of Rs 2,191 a tonne in the June 2016 quarter up 25 per cent sequentially. Analysts attribute this to better exports.

The volumes reported by NMDC during the April-September 2016 period are 12 million tonnes (mt) – an increase of 12.37 per cent over the year-ago period. Sales stood at 15.83 mt, up 20.75 per cent over the same period last year. Analysts at Kotak Securities in a recent report had said NMDC would largely remain a volume player in the medium term. They maintain FY17 sales volume estimates of the company at 31 mt.

The firm’s expansion is also supporting volumes. With the commissioning of 7 mt per annum (mtpa) Deposit-11B in Chhattisgarh and completion of conveyor at the Kumarswamy mine in Karnataka, NMDC now has capacity to produce and dispatch nearly 46 mtpa.

Analysts at Motilal Oswal Securities in a recent report had said that with the adoption of differential pricing and reduction in rail freight of exports, dispatches from Chhattisgarh were already improving. They had raised their volume estimates to 32.7 mt for FY17 and 36 mt for FY18.

The company with a strong balance sheet has a history of strong dividend payouts. Added to this is the share buyback that is continuing which is also a positive. The company is looking at forward integration and is in the process of setting up of a 3-mtpa steel plant. Analysts at Motilal Oswal Securities say NMDC could look to monetise this investment. This will help unlock value for shareholders, sustain high dividend payouts and lead to the re-rating of the stock.