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Result Synopsis

NMDC’s Q1FY25 earnings were above the consensus estimates owing to higher realizations and higher margins as compared to Q4FY24 due to normalized royalty rates. The EBITDA margins came in at 43.2% vs 32.4% in Q4FY24. The realization/t for the quarter came in at Rs 5,304/t, reporting a rise of 3.5% from Q4FY24, where the same was Rs 5,125/t. NMDC incurred about Rs 2,100 crores of capex during FY24 and is expected to undertake ~Rs 2,200 crores on an annual basis for FY25E and FY26E. The capex is then expected to increase and reach peak levels of Rs 7,000-8,000 crores from FY27E onwards for the company which is on the path to doubling its mining capacities to 100 mtpa by FY2031.

On the operational front, the company reported an iron ore production of 9.189 mn tonnes for the quarter and sales of 10.043 mn tonnes. The production fell by over 30% QoQ whereas the sales saw a fall of ~20% on a QoQ basis.

Our View

NMDC has been performing well on the operational front and had undertaken multiple price hikes since the start of the CY24. Owing to the monsoons and a seasonally weak demand period, a couple of price-cut initiatives have taken place which is expected to impact the realizations by ~Rs 1,000/t in Q2FY25. Over the course of the next year and a half, India is seeing new capacities of steel being ramped up which would require a great supply of iron ore. We see the iron ore market to remain tight for the near-term and expect some price recovery post the monsoons.

The global iron ore prices however are touching new lows owing to a poor demand for the mineral on a global level. We believe that the demand revival in China is still afar which can cause the global iron ore market to be under-pressure. Additionally, new mines coming up in the African regions will only heat up the oversupply situation for iron ore globally. We see such global cues can have a negative impact on the domestic pricing as well.

Valuation

We maintain our ADD rating on NMDC, however we cut our EV multiple to 6.0x owing to the global headwinds the steel and iron ore industry are facing currently. We value NMDC at 6x FY26E EV/EBITDA to arrive at our revised target price of Rs 239/sh.

Result Highlights

* Consolidated revenue from operations stood at Rs 5,414 crores (vs consensus estimate of Rs 5,482 crores and our estimate of Rs 5,733 crores), down 16.6% QoQ and flat on a YoY basis. o Iron ore revenue stood at Rs 5,342 crores for the quarter.

* Absolute EBITDA stood at Rs 2,340 crores (vs consensus estimate of Rs 2,005 crores and our estimate of Rs 2,216 crores), up 11.3% QoQ and 17.4% crores. EBITDA margins stood at 43.2% vs 32.4% in Q4FY24 and 37.0% in Q1FY24.

* PAT stood at Rs 1,971 crores (vs consensus estimate of Rs 1,679 crores and our estimate of Rs 1,663 crores).

* Average realizations/t stood at Rs 5,304/t vs Rs 5,125/t in Q4FY24.c

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