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Weak qtr; volume ramp up is the key

Quick Pointers:

* NMDC has guided for ~55mt of sales volume for FY26.

* NMDC is targeting to ramp up KIOCL’s 3mtpa pellet plant in FY26

NMDC’s reported weak Q4FY25 operating performance mainly due to weak pricing and flattish volumes. Realization declined 7% QoQ on product mix deterioration and price cuts of Rs350/t undertaken for lump and fines in Q4FY25. NMDC received lower premium over quoted prices in a weak pricing environment during the quarter. Volumes grew just 1% YoY due to a 14-day employee strike over wage settlement. Higher other expenses (on account of traded steel sales from NMDC Steel and KIOCL’s pellet plant costing) and employee costs, impacted EBITDA/t by 4% YoY to Rs1,619 (PLe Rs1,732). With a sharp rise in debtor days due to RINL/NSL, NMDC’s cash conversion cycle has also deteriorated in FY25.

As Indian steel production growth remains strong, iron ore market is expected to remain tight in near future. Mgmt. is targeting to utilize maximum EC limits in FY26 and produce ~55.4mt however, execution would remain a key. We factor in 49.3/54mt volumes for FY26/27E and raise EBITDA estimates by 8%/6% on price hikes undertaken in May’25. At CMP, the stock is trading at 5.2x/4.7x EV of FY26/27E EBITDA. Maintain ‘Accumulate’ with a revised TP of Rs75 (earlier Rs69) valuing it at multiple of 5x EV of Mar’27E EBITDA.

* Revenue aided by pellets & traded steel sales: Cons revenue grew 8% YoY to Rs70bn (up 7% QoQ; PLe 67.3bn) on account of higher revenue from pellets/ other mineral division (which includes pellets exports of Rs4.5bn and trading sale of steel from NSL worth Rs2bn). Iron ore revenue declined 1% YoY to Rs63.5bn. Iron ore sales were up 1% YoY to 12.67mt while average ore realization declined 7% QoQ to Rs5,012/t (-2% YoY; PLe 5,173) on product mix deterioration as NMDC received lower premium over quoted prices in weak pricing environment during Q4FY25. NMDC had cut lump and fines prices in early Jan by ~6% and raised prices again in May’25 by ~8%.

* Cons EBITDA affected by higher operating costs: Cons EBITDA declined 2% YoY to Rs20.5bn (-14% QoQ; PLe 21.9bn) on higher other expenses & employee costs. Other expenses per ton increased 25% YoY to Rs837/t (includes Rs2.5bn of KIOCL’s pellet plant and Rs2bn of purchase of traded steel), employees cost grew 15% YoY to Rs432/t; while royalty and cess per ton declined 7% YoY to Rs2,292/t. Freight costs per ton increased 54% YoY to Rs126 while Consumption of stores & spare parts was largely in-line at Rs164/t. Resultant, blended EBITDA/t declined 4% YoY to Rs1,619 (down 19% QoQ; PLe Rs 1,732/t). Reported cons PAT grew 3% YoY to Rs14.8bn (-22% QoQ; PLe Rs16.8bn).

* Rise in debtor days due to various projects: 1) Post NMDC Steel demerger, Rs36.6bn (Rs31.6bn in Q3) is due on account of sale of iron ore and Rs1.4bn (Rs2.1bn in Q3) is due on account of employee services and purchase of HR Products as of 4QFY25. Another Rs40.5bn (Rs34.6bn in Q3) is due from RINL for supply of iron ore. With NMDC Steel expected to break even in FY26, mgmt. expect debtor days to come down by end FY26. 2) As of March 31, 2025, trade receivables from RINL stood at Rs40.bn. on account of iron ore supplies. A revival plan of Rs114.4bne was approved by CCEA, and lenders have cleared financial support. Management expects full recovery; however, Rs106.6mn has been provided as expected credit loss for time value of money. 3) Baster Railway P Ltd (JV company) was formed to build, construct, operate 140km Jagdalpur-Rowghat rail corridor. In Dec’24, Railways board granted in principal approval for taking over of this project. NMDC expects to get the full cost recovered.

Q4FY25 Concall Highlights:

* NMDC aims to achieve sales volume of 55.4mt in FY26, with the screening plant targeting to operate at over 100% capacity utilisation.

* NMDC is evaluating overseas assets and has opened an office in Dubai to support operations in Africa.

* Two coal blocks (incl. Rohne) and two iron ore JV blocks are expected to become operational in FY26.

* NMDC’s Legacy ops have been stabilized in the last 2-3 months and is expected to be profitable in FY26.

* A long-term lease with RINL has been extended. It has ~1,167 acres of land near Gangavaram Port, expected to aid the planned 100mtpa expansion. An 8mtpa slurry pipeline is planned from Kirandul to Bacheli and from Nagarnar to Vizag.

* Capex: NMDC incurred a capex of Rs37bn in FY25 and targets Rs40bn in FY26. NMDC is planning cumulative investment of over Rs100bn for next two years.

* The 2mtpa pellet plant at Nagarnar is expected to be completed by the end of CY25.

* Projects worth Rs280bn have already been sanctioned, with another Rs120bn expected to be approved in the coming months. Projects worth Rs310–320bn are in the planning stage.

* Only two sections (20km out of 150km) of the KK line are pending now, and Indian Railways is targeting for completion by Dec’25.

* Other expenses were elevated due to KIOCL pellet exports and a marketing tie-up with NSL, which increased purchase costs.

* KIOCL Pellet volume is expected to increase from 0.5mt in FY25 to 2.5–3mt in FY26.

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