Volume gains, diversification into coal and minerals to drive NMDC growth

NMDC targets 60 MT of iron ore production in FY27 and plans to start commercial thermal coal output as it diversifies into coal, critical minerals and rare earth elements

Iron ore miner NMDC intends to begin commercial thermal coal production in Q3FY27, targeting 1 million tonnes (MT) of coal sales in FY27 and aiming for 20 per cent of non-iron ore revenue by 2030, as part of diversification plans to go beyond iron ore. NMDC plans to commence commercial thermal coal production at its 52 MT Tokisud North mine in Jharkhand, targeting up to 1 MT of sales in FY27.

 

While strong steel demand could pull the company into a new upcycle, the coal-mining foray is one of the ways in which NMDC is looking to diversify beyond iron ore. It is looking at mining coking and non-coking coal, other critical minerals, and rare earth elements. The coal business is expected to contribute Rs 5,000 crore to revenues over the next three years. NMDC has set up a subsidiary for acquiring rare earth and other critical mineral assets, with Rs 2,000 crore of planned investment in FY27.

 

In Q1FY27, NMDC’s revenue met consensus estimates at Rs 6,795 crore, which was up 0.8 per cent year-on-year (Y-o-Y), but down 19 per cent quarter-on-quarter (Q-o-Q), with lower sequential volumes offset by better net sales realisation. Ore production stood at 15.1 MT (up 26 per cent Y-o-Y and down 7 per cent Q-o-Q), while sales were at 11.8 MT (up 2 per cent Y-o-Y and down 23 per cent Q-o-Q). Revenue from pellet and other mineral sales was Rs 288 crore, down 49.8 per cent Y-o-Y and 92.9 per cent Q-o-Q, due to the absence of steel trading volumes.

 

The blended average selling price (ASP) was Rs 5,783 per tonne (t) (down 1 per cent Y-o-Y and up 5 per cent Q-o-Q). Iron ore ASP stood at Rs 5,790/t, up 8 per cent Y-o-Y and 19 per cent Q-o-Q. Earnings before interest, tax, depreciation and amortisation (EBITDA) was Rs 2,468 crore, which was flat Y-o-Y and down 3 per cent Q-o-Q, with EBITDA/t at Rs 2,100, down 2 per cent Y-o-Y and up 27 per cent Q-o-Q. The adjusted net profit was Rs 1,980 crore, flat Y-o-Y and up 1 per cent Q-o-Q. 

 

The EBITDA margin was 36.3 per cent (23.3 per cent in Q4FY26 and 36.8 per cent in Q1FY26). The margin expanded by 1,302 basis points Q-o-Q due to the absence of low-margin hot-rolled coil (HRC) trading, higher ore realisations, and sharp reductions in operating expenses. Cost of production, excluding selling expenses and royalty, stood at Rs 584/t, down 53.8 per cent Y-o-Y and 83 per cent Q-o-Q. Employee costs per tonne were Rs 417, down from Rs 445 in Q4FY26. Royalty and cess were up 30 per cent Y-o-Y.

 

Management guided for production volumes of 60 MT in FY27, with higher environmental clearance (EC) and a new joint venture (JV) mine. EBITDA margin is guided to remain between 35 and 40 per cent. The company has capex plans across evacuation and capacity-enhancement projects, with capex expected to rise to around Rs 7,000-10,000 crore over the medium term from an estimated Rs 6,000 crore in FY27. The long-term target is to raise iron ore production capacity to 100 MT by FY30. The company also expects pellet sales to increase to 3.3 MT in FY27 from 2.4 MT in FY26, while maintaining an EBITDA margin of 42-43 per cent for the pellet segment.

 

Assuming FY27 guidance of 60 MT is achieved and EBITDA margin stays around 36 per cent or higher, operating leverage and the absence of low-margin HRC trading for NMDC Steel should support profitability, and this seems to be the case already in Q1FY27 margins. A production growth rate of around 6 per cent per annum over the next four fiscals could translate into EBITDA growth of close to 20 per cent. Over the medium term, the ramp-up of coal mining and a higher contribution from value-added products, including branded iron ore and DRI-grade pellets, look possible. Of course, weak global commodity pricing is a risk.

 

NMDC Steel reported a sequentially weaker quarter, with revenue declining 6 per cent Q-o-Q to Rs 3,660 crore and EBITDA falling 50 per cent Q-o-Q to Rs 390 crore. Reported net profit of Rs 50.5 crore declined sharply from Rs 390 crore in Q4FY26, reflecting seasonal weakness and higher costs. Debt at NMDC Steel increased to Rs 5,050 crore from Rs 4,600 crore in Q4FY26.

 

Given that these are commodities, realisations are highly correlated with global prices and volume growth has to be the key lever for boosting revenues. The steady expansion of domestic steel capacity guarantees stable offtake since domestic iron ore consumption is expected to increase to 460 MTPA by FY31 from around 310 MTPA in FY26. But in the near term, low realisations and rising royalty costs will remain constraints. The jump in EBITDA margins may be sustainable, or even improve, if ore prices remain stable.