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EBITDA in-line; robust volume growth visible

NMDC reported in-line EBITDA of R20bn (CentrumE: Rs20.8bn), up ~5% YoY and EBITDA/t at Rs1,818 (CentrumE Rs1,865/t). The increase in EBITDA was primarily due to significant increase in sales volume up 41% YoY offsetting 20% decline in realisation/t. During the quarter, sales volume was higher than production and achieved highest ever Q1 volume. Management is confident of achieving 47-49mt production target for FY24 (vs 38mt in FY23) and expects operating leverage will help to offset any decline in realisation and hence will maintain ~40% operating margin during the year. Nagarnar Steel has started producing hot metal and expect to fully commission by August 2023 end. The clearance for Kumarswamy expansion from 7mt to 10mt is expected to receive by Sept 2023 end. Besides, Bacheli mine upgradation of screening plant will further add 3mtpa and completion of KK line in FY24 will improve evacuation and logistics efficiency. We maintain BUY rating and increase target price to Rs146/share (Earlier: Rs133/sh), valuing at 4.5x (earlier: 4.0x) FY25E EV/EBITDA. At current price, it is trading at 3.5x FY25 EV/EBITDA.

Higher volume led to EBITDA fall YoY

Net sales, at Rs54bn, was up 13% YoY as sales volume rose by 41% YoY to 11mt offset by 20% YoY decline in net realisation at Rs4,851/t, down Rs1200/t YoY. As a result of operating leverage benefit, Blended CoP, at Rs3,100/t decreased by Rs580/t (16%) YoY. The premium and royalty cost on iron ore sales formed 44% of sales (vs 50% in Q1FY23). As a result of lower realisation partially offset by higher volume and lower cost resulted in fall in EBITDA/t by Rs620/t (25%) YoY to Rs1818, although EBITDA stood up by 5% YoY at Rs20bn.

Capex completion progressing well; KK line expected to complete by FY24 end

NMDC ongoing capex projects like setting screening plant at Bacheli mine of 3mtpa as well as final clearance by monitoring committee for Kumarswamy mine will also add 3mtpa is key to company’s volume growth. The projects is expected to complete soon and start contributing from H2FY24 onwards. The doubling of KK line is currently work in progress and expected to complete by FY24 end. Once completed it will enhance the evacuation capacity of Bailadila from 28mtpa to 40mtpa. The work on 135km slurry pipeline from Bailadila to Nagarnar and further to Vizag is expected to complete in 3-4 years. Capex guidance for next 2 years is Rs20-25bn and can increase to Rs60-80bn/year to achieve 100mt iron ore capacity by FY30-31.

BUY with target price of Rs146

Management guided huge growth in volumes to 47-49mt in FY24. It targets to double capacity from 51.8mt to 100mt by FY30-31. NMDC has planned well and executing to enhance its production capacity and improve logistics efficiency. We see sound growth prospects and strong demand visibility as India is marching towards 300mtpa steel capacity by 2030. As on Q1FY24 end, it has cash balance of Rs118bn (i.e Rs40/sh/ 35% of current market cap). We believe company will deliver strong earnings growth; EPS growth of 16% CAGR over FY23-25E and ROE of 22%. We recommend BUY rating with target price of Rs146.

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