NMDC gains as Motilal Oswal sees 24% upside in stock, revises target price

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Share price of state-run NMDC gained over 3.5 percent on December 26 after domestic brokerage firm Motilal Oswal Financial Services revised its target price on the stock to Rs 138 from Rs 134 earlier. The stock was quoting at Rs 115.85 apiece, higher by 3.85 percent on the NSE.

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The brokerage firm believes China reopening augurs well for NMDC as demand for iron ore will surge globally. "Measures taken to boost the GDP growth in China should lead to higher steel production and consequently demand for iron ore and pellets," said Motilal Oswal Financial Services in a recent note.

In October 2022, NMDC formally de-merged its steel plant which will now be listed separately. MOFS believes the government is likely to disinvest its
shareholding in the NMDC steel plant.

"Any additional capex now on the steel plant will be through the balance
sheet of the steel plant without recourse to the mining business. NMDC does not have a very large capex pipeline for the mining business, hence, we expect a strong dividend," the brokerage firm added.

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It expects NMDC to continue with volume CAGR of 11.5 percent from FY21-25 on the back of higher volumes in both Chhattisgarh and Karnataka. It sees a record 51 MT volume in FY25.

In Q2FY23, the company had posted a 62 percent fall in its consolidated net profit to Rs 885.65 crore, mainly because of fall in domestic iron ore prices.

But with reopening of China, iron ore demand is set to bounce back and prices will shoot up, as per MOFS. Capex-intensive plans will also reduce after demerger, and thus, the brokerage has increased its FY23/24 EBITDA estimate by 3 percent/4 percent. It has Buy rating on the stock with target price of Rs 138 apiece.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​​