NMDC stock declines 10%; ICICI Securities downgrades it to "Reduce"

Shares of NMDC cracked as much as 10 per cent on the BSE on Monday. The company on Friday announced that its board had approved a proposal to demerge NMDC Iron & Steel Plant (NISP). 

The three-million-tonne (mt) steel plant is the only greenfield project slated for commissioning in the near term. Sources familiar with the matter said that the plant would have been commissioned by now had it not been for the Covid-19 pandemic.

In a separate development, Minister of Coal, Mines & Parliamentary Affairs, Pralhad Joshi, highlighted the arrangement that the Centre has reached with Karnataka regarding the restarting of NMDC’s Donimalai mines.

The two facets of the arrangement are: A committee under the chairmanship of mines secretary has been formed to look into how much premium, a state or central public sector unit (PSU) should pay on renewal of the mines – the decision is expected in three months (earlier it was zero under MMDR). 

The second facet is that till the time the decision is reached, based on the request of CM of Karnataka, to avoid losses to the state, an additional premium of 22.5 per cent has been imposed on renewal of all mines (state and central PSUs). Thus, NMDC can restart Donimalai mines by starting to pay 22.5 per cent additional premium, notes ICICI Securities. 

"The implications of this measure more than negates whatever value upside could have come from steel plant demerger, as it impacts our FY22E EBITDA by nearly Rs 21 billion or nearly 35 per cent," the brokerage said in a note issued on August 30. 

It has downgraded the stock to "REDUCE" with a revised target price of Rs 94/share.

For the quarter ended June 2020, NMDC reported a 55 per cent slump in its net profit at Rs 533 crore as both production and sales were impacted due to the Covid-19 lockdown. The company had posted Rs 1,179 crore PAT in the corresponding quarter in 2019-20. READ MORE

NMDC's turnover during the first quarter was Rs.1,938 crore compared to Rs 3,264 crore during the corresponding quarter last fiscal, the company said.

At 01:07 pm, NMDC was trading nearly 9 per cent lower at Rs 98.05 on the BSE. The stock hit a low of Rs 97.45 during the session. Other mining stocks, too, were trading in the negative territory. MOIL was trading over 3 per cet lower at Rs 148.50 while Sandur Manganese & Iron Ore was trading over 6 per cent lower at Rs 714.95.