Buy NMDC; target of Rs 261: Prabhudas Lilladher

Prabhudas Lilladher's research report on NMDC

NMDC Limited (NMDC) 3QFY24 EBITDA grew strong 69% QoQ to Rs 20.1bn (up 76% YoY) on higher than expected increase in average realization as company had taken price hikes during the quarter. As Kumaraswamy EC extension approvals are delayed, NMDC expects ~47/51mt in FY24/25E; in line with our earlier volume assumptions. We maintain our 46.2/50.5mt volume estimates. Benefit of price hikes undertaken in 3Q should flow in coming quarters till monsoon, which can affect pricing due to softer demand. NMDC is well placed to capitalize on strong volume growth in domestic steel markets over next two years given a) its increased focus on mining business expected to deliver strong 12% CAGR over FY23-26E to ~54mt iron ore volumes; b) doubling of railway line for evacuation and higher availability of rakes to support iron ore volume growth; c) other high margin minerals to constitute ~10-15% of revenue in next 5 years.

Outlook

We expect Revenue/EBITDA/PAT growth of 17%/20%/20% over FY23-26E. At CMP, stock is trading at 7.1x/5.6x EV of FY25E/FY26E EBITDA. Maintain ‘Buy’ rating with TP of Rs261 valuing at 6x EV of Mar’26E EBITDA.