Buy NMDC; target of Rs 245: Sharekhan

Buy

Sharekhan's research report on NMDC

Operational performance has been robust with an 18%/24% y-o-y growth in NMDC’s iron ore production/sales volume to 31.8mt/32mt in 9MFY24. FY24 production guidance of 47-49 mt (23-28% y-o-y growth) seems achievable. Steep iron ore lump/fines price hike of 20%/26% over Sep-23 to Jan-24 reflects strength in international iron ore prices. Majority of benefit of price increase would be seen in Q3FY24. Q3FY24 earnings to be remain strong given volume growth (up 21% y-o-y) and better realisations. Volume tailwinds from strong domestic steel demand and margin recovery would drive a 19% PAT CAGR over FY23-26E. Moreover, demerger of the steel business will reduce capital intensity and should lead to re-rating as financial remain robust.

Outlook

We maintain a Buy rating on NMDC with a revised PT of Rs. 245. Valuation of 5.2x its FY26E EV/EBITDA is reasonable given strong earnings growth outlook and healthy dividend yield of ~4-5%. High cash of Rs. 14,000 crore or 22% of current market capitalisation provide comfort.

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NMDC - 04 - 01 - 2024 - khan