Moderate valuations offer support for NMDC despite market headwinds

Iron ore production stood at 13.3 mn tonnes (up 9 per cent Y-o-Y and 61 per cent Q-o-Q), while sales stood at 11.9 mn tonnes (up 5 per cent Y-o-Y and 20 per cent Q-o-Q) during the quarter under review

India’s largest iron ore producer NMDC reported revenue growth of 21 per cent year-on-year (Y-o-Y), up 33 per cent quarter-on-quarter (Q-o-Q), to ₹6,600 crore in the third quarter of the financial year 2025 (Q3FY25).

 

There was strong volume growth.

 

Iron ore production stood at 13.3 million tonnes (up 9 per cent Y-o-Y and 61 per cent Q-o-Q), while sales stood at 11.9 million tonnes (up 5 per cent Y-o-Y and 20 per cent Q-o-Q) during the quarter under review. Average selling price for the quarter came in at ₹5,500 per tonne, up 16 per cent Y-o-Y and 11 per cent Q-o-Q, driven by a sustained price hike.

 

Operating profit stood at ₹2,370 crore (up 18 per cent Y-o-Y and 71 per cent Q-o-Q). NMDC reported operating profit per tonne of ₹1,987 per tonne, up 13 per cent Y-o-Y and 43 per cent Q-o-Q. Adjusted net profit was ₹1,900 crore (up 13 per cent Y-o-Y and 59 per cent Q-o-Q).

 

In the first nine months of FY25 (9MFY25), the company reported revenue of ₹16,900 crore (up 14 per cent Y-o-Y), operating profit of ₹6,100 crore (up 17 per cent Y-o-Y), and adjusted net profit of ₹ 5,100 crore (up 16 per cent Y-o-Y). For 9MFY25, iron ore sales volume came in at 32 million tonnes (flat Y-o-Y), average blended net sales realisation stood at ₹5,290 per tonne (up 14 per cent Y-o-Y), and operating profit per tonne was at ₹1,910 per tonne (up 17 per cent Y-o-Y). NMDC has guided for a volume of 16 million tonnes in Q4FY25, achieving a volume guidance of 50 million tonnes for FY25. Management expects a volume of 53 million tonnes in FY26 and 60 million tonnes in FY27, with incremental loading of ₹6-7 million tonnes from two new lines (line-4 in Bacheli and line-13 in Kirandul).

 

Management indicated that the company was able to sustain iron ore prices in a steel price downturn and aims to sustain the prices. The royalty per cent to sales was higher in Q3FY25 on account of higher production volume, though sales volume remained comparatively lower. 

 

The company has not started provisioning related to the Karnataka Minerals Tax Bill which could impact royalties. India hardly exports steel to the US, so there is no immediate impact of the 25 per cent tariff.

 

In Q3FY25, volume growth picked up Q-o-Q after low activity in H1FY25 due to general elections and monsoon. NMDC took significant price hikes during 9MFY25 ( up 14 per cent Y-o-Y) to offset the adverse volume impact, translating into operating profit growth.

 

Planned capex is allocated for sundry evacuation and capacity enhancement projects, which will improve the product mix and increase capacity to 100 million tonnes by FY29-30. The expansion of 2 million tonnes per annum or mtpa pellet plant (to 6 mtpa) is targeted to be completed by calendar year 2025 end.

 

NMDC has guided for capex of ₹4,000 crore in FY25. It has planned a long-term capex of ₹65,000-80,000 crore for the next 5-6 years to reach its capacity target of 100 mtpa.

 

NMDC has terminated the slurry pipeline Phase-II (Nagarnar to Vizag) due to uncertainty about the slurry pipeline culmination. Out of the 131 kilometre slurry pipeline, 31 kilometre is pending and the rest is completed.

 

RINL, which is a key client, received a grant of ₹11,000 crore from the Central government and NMDC has started receiving payments for supplied iron ore. Liquidation of the outstanding receivables is expected soon.

 

The company is in talks with 5-6 vendors to supply rakes, with a target of having at least one rake available per day by mid-March 2025 or April 2025. NMDC Steel production stood at 367,000 tonnes in Q3FY25, with a monthly production run rate of 150,000 tonnes in December 2024. NMDC Steel would achieve breakeven at 465,000-480,000 tonnes of production.

 

Despite headwinds due to slow down in the steel cycle, NMDC is moderately valued and maintains key position as a primary ore supplier.