Sharekhan's research report on NMDC
Q3FY2023 consolidated operating profit of Rs. 1,141 crore (up 18% q-o-q) was 3% above our estimate, led by marginal beat in EBITDA margin. PAT of Rs. 912 crore (down 6.2% q-o-q) was in line, as benefit of better margin was offset by higher tax rate and increased interest and depreciation cost. EBITDA margin recovered sequentially and increased by 18% q-o-q to Rs. 1,191/tonne (3% above our estimate). Iron ore sales volume posted strong growth of 13.6% q-o-q to 9.6mt, while blended realisation was at Rs. 3,883/tonne (down 1.6% q-o-q). NMDC has taken price hike of Rs. 600/Rs. 1,300 per tonne since November 2022, but domestic prices are still at a steep discount to international prices. Management has guided to achieve iron ore sales volume of 41mt (flat y-o-y but seems difficult as ask rate for Q4 is high at 14.8mt) in FY2023 and aims for 50 million tonne for FY2024. Potential listing of NMDC Steel Limited (expected by the end of February 2023) would be a key catalyst for the stock.
Outlook
We maintain Buy on NMDC with an unchanged PT of Rs. 145, as likely improvement in iron ore prices bodes well for margin/earnings recovery in FY2024. Valuation of 3.2x its FY2025E EV/EBITDA and 0.8x its FY2025E P/BV is attractive and the stock offers high dividend yield of 8-9%.
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