Realisation worries, capital expenditure likely to hit NMDC stock

In Q4FY25, volume growth picked up. NMDC implemented price hikes in FY25. In future, volume pick-up and stable realizations will be key

NMDC’s revenue in Q4FY25 was at ₹7,000 crore, up 8 per cent year-on-year (Y-o-Y)  and 7 per cent quarter-on-quarter (Q-o-Q), driven by healthy volumes and net sales realisation (NSR). Iron ore production stood at 13.3 million tonnes (mt) (flat Y-o-Y and Q-o-Q). Sales were at 12.7 mt (up 1 per cent Y-o-Y and up 6 per cent Q-o-Q) in Q4FY25. The average sales price was ₹5,530 per tonne (up 7 per cent Y-o-Y and flat Q-o-Q).

 

The operating profit was ₹2,050 crore (down 2 per cent Y-o-Y, down 14 per cent Q-o-Q). The operating profit per tonne stood at ₹1,620 per tonne (down 3 per cent Y-o-Y and down 19 per cent Q-o-Q). The adjusted net profit was ₹1,480 crore (up 3 per cent Y-o-Y and down 22 per cent Q-o-Q).

 

For FY25, NMDC reported revenue of ₹23,900 crore (up 12 per cent Y-o-Y), operating profit of ₹8,150 crore (up 12 per cent Y-o-Y), and adjusted net profit of ₹6,500 crore (up 13 per cent Y-o-Y). The ore production for FY25 stood at 44mt (down 2 per cent Y-o-Y) and sales volume at 44.6mt, flat Y-o-Y. Average blended NSR for FY25 stood at ₹5,325 per tonne (up 15 per cent Y-o-Y). Operating profit per tonne grew 11 per cent Y-o-Y to ₹1,930 per tonne.

 

In FY26, NMDC guided for production of 55mt. Domestic ore prices are stable, supported by safeguard duties on steel. The high raw material costs (over 80 per cent of sales vs industry peers at 50-55 per cent) were driven by a higher lump-to-fines ratio (32:68 vs. 20:80 for peers).

 

NMDC aims to double its capacity from 50mt to 100mt by FY30. For FY26, NMDC has guided for a capex of ₹4,000-4200 crore, with a ramp-up of capex in FY27-28 (exceeding ₹10,000 crore annually) as more projects are executed. NMDC incurred capex of ₹3,700 crore in FY25, primarily toward expansion. About ₹40,000 crore worth of projects have been sanctioned, with ₹8,600 crore under execution and ₹20,000 crore at the tendering phase. An additional ₹12,000 crore is slated for sanctioning soon and ₹31,000-32,000 crore of projects are in the planning stage. 

 

Investments in downhill conveyors, screening plants, and railway infrastructure are underway to support higher production and evacuation. The debottlenecking will enable plants to operate at 95-105 per cent capacity. The Greenfield Nagarnar Steel Plant became operating profit positive month-on-month in March-April’25, with production rising from 110-120 kilo tonne (kt) to 180-190 kt monthly and dispatches up from 125 kt to 230 kt.

 

In Q4FY25, volume growth picked up. NMDC implemented price hikes in FY25. In future, volume pick-up and stable realisations will be key. NMDC is transitioning to an index-based pricing model for iron ore to enhance transparency. 

 

NMDC also exported 0.5mt of pellets in FY25, generating ₹448 crore of revenue. For FY26, the company targets 2.5-3 mt pellet sales. The company plans to produce DRI grade pellets (66-67 per cent iron) improving on the current 62-63 per cent grade, aiming for a premium of $30-40 per tonne internationally. Current realisation of $105-110 per tonne, may rise to $140-150 per tonne with higher grades.

 

Beyond iron, NMDC is diversifying into coking coal, copper, lithium, cobalt, nickel, gold, and bauxite, with a portfolio of 10 strategic minerals. NMDC is evaluating operational coking coal assets in Indonesia, Australia, and other regions, aligned with India’s target to increase coking coal imports (from 55-60 mt to 150-160 mt). Two coal blocks which are NMDC’s JV are expected to become operational by H2FY26. Management thinks current cash flows can fund domestic expansion. However, it may leverage its balance sheet for international acquisitions.

 

Receivables hit ₹7,800 crore in Q4FY25 on account of dues from RINL and NMDC Steel. Management says both entities have begun repayments (NMDC Steel is paying ₹200 crore monthly; RINL repayments via bill discounting) but under-recovery could be a concern.

 

The lower operating profit is also a concern given that domestic iron ore prices are at a peak and vulnerable to imports without safeguard duties. Capex plans would lead to lower free cash flows and lower returns over the next five fiscals. While the NMDC valuation is moderate, there are multiple hurdles that are weighing down the stock price.