Leading miner National Mineral Development Corporation or NMDC is heading towards a sticky patch starting FY26, with its earnings likely to peak this year, Kotak Institutional Equities said in a recent note, sounding cautious on the metals and mining sector.
Kotak Institutional has issued a ‘Sell’ call with a price target of Rs 55, projecting a downside of 15.4 percent from the last closing price of Rs 65 per share.
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The Kotak note anticipates a rise in India’s iron ore surplus over FY26-27, driven by lower exports and a ramp-up in merchant mining. Lloyds Metal's Gadchiroli mine is set to scale up production from 10 mtpa to 25 mtpa between FY26-27. NMDC’s volumes have remained flat on-year in the first 11 months of FY25, falling short of 10 percent growth target.
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Seaborne iron ore prices are expected to remain under pressure through CY2025-27, driven by two key factors, weakening Chinese demand and rising domestic supply within China. Potential protectionist measures against China's steel exports and their sluggish domestic consumption could lead to lower steel production, dampening global iron ore demand.
Increased supply through a ramped up Tier-1 iron ore production is set to create a significant market surplus in China. Additionally, reports suggest China may impose steel capacity cuts through supply-side reforms, which, if implemented, could further increase surplus.
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The Karnataka government has proposed an additional 22.5 percent royalty and a mineral right tax of Rs 101 per tonne, a move that could dent NMDC’s EBITDA by 14 percent if applied in Karnataka and by 47 percent if extended nationwide in FY26. However, the proposal is still awaiting the Governor’s approval, and for now, a higher tax rate is not factored into Kotak’s base case, pending a final decision.
Kotak Institutional Equities has lowered its EBITDA estimates for FY26 and FY27 by 11 percent and 8 percent, respectively, factoring in weaker volumes and subdued iron ore prices. The brokerage sees significant downside risks to consensus earnings, which it believes underestimate the impact of price and volume pressures.
At about 1:10 pm, shares of the company were trading at Rs 64.46, lower by 2.23 percent from the last close on the NSE. NMDC shares are trading 66 percent lower from its all-time high of Rs 190 per share.
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