After market rally, iron-ore miner NMDC stock to price in positives

NMDC, the country’s largest iron-ore miner, posted a consolidated revenue in the January-March quarter of FY24. This was in line with estimates at Rs 6,500 crore, which was up 11 per cent year-on-year (Y-o-Y), and a 20 per cent quarter-on-quarter (Q-o-Q) rise on the back of realisations.

Iron-ore production was 13.3 million tonnes (down 6 per cent and up 8 per cent Q-o-Q), while the sales stood at 12.5 MT (up 1 per cent Y-o-Y and up 10 per cent Q-o-Q). The average selling price (ASP) improved to Rs 5,174 per tonne (up 10 per cent Y-o-Y and 9 per cent Q-o-Q).

The iron-ore miner reported earnings before interest, taxes, depreciation, and amortization (Ebitda) of Rs 2,100 crore (down 3 per cent Y-o-Y and up 5 per cent Q-o-Q), which was a miss due to higher operating costs and higher royalty and cess.

The Ebitda per tonne was at Rs 1,676 (down 4 per cent Y-o-Y and down 5 per cent Q-o-Q). The adjusted PAT was Rs 1,400 crore (down 14 per cent Y-o-Y and down 19 per cent Q-o-Q). There was a higher tax outgo.

In FY24, the volumes stood at 45.1 MT (up 10 per cent Y-o-Y), and the sales volume was 44.5 MT (up 16 per cent Y-o-Y). The revenue was Rs 21,300 crore (21 per cent Y-o-Y), Ebitda stood at Rs 7,300 crore (up 21 per cent Y-o-Y), and adjusted PAT was Rs 5,700 crore, up 18 per cent Y-o-Y.

The Ebitda per tonne stood at Rs 1,640 (up 4 per cent Y-o-Y) in FY24. The final dividend per share was Rs 1.5 (after an interim dividend of Rs 5.75).

The management gave volume guidance of 50 MT for FY25 and targets 54 MT of iron ore in FY26. But there will be lower volume in Q1FY25 due to the worker strike impacting 1 MT of production. In FY25, an incremental 2 MT is likely to be produced in Karnataka and 3 MT in Chhattisgarh.

The royalty percentage to sales rose to 47 per cent during Q4FY24.

The management estimates royalty at 43 per cent of revenue in the future. NMDC had a capex of Rs 2,100 crore during FY24 and guided capex spending in the range of Rs 1,500 crore to Rs 2,000 crore for FY25. It is eventually targeting production of 100 MT by FY31.

NMDC Steel’s (listed subsidiary that produces steel) monthly production run rate is 0.12 MT. NMDC Steel procures ore from NMDC. The monthly steel production run rate stands at 120,000 tonnes (about 1.4 MT per annum).

The break-even will occur at 1.7 MT per annum and the margin would increase substantially only after 2.5 MT per annum steel production is achieved.

While the Q4FY24 performance saw some pressure on profitability, the outlook is good. NMDC managed two price hikes in Q1FY25, to improve ASP. Environmental clearances have come through and production can ramp up in FY25 and FY26 with clearance for 53 MT of production.

Downstream, India’s crude steel production saw 15 per cent Y-o-Y growth (to about 144 MT) and may hit 8-10 per cent CAGR in the near term. Every major steel producer is adding significant capacity. Hence, steel demand should be robust, backed by policy thrust on infrastructure, and ensure demand for iron ore.

While prospects look good, the share price has run up considerably and many analysts feel the stock is fully priced or expensive at current levels. That could make it vulnerable to any downturn in the steel and iron-ore cycle.