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Revenue and EBITDA beat estimates

Volume momentum to continue; NMDC to produce 50mt by FY25E

* Revenue grew 13% YoY to INR53.9b in 1QFY24, 12% above our estimate of INR48b. Blended ASP stood at INR4,915/t, down 20% YoY and INR558/t higher than our estimate of INR4,358/t.

* EBITDA was up 5% YoY at INR20b, 22% above our estimate. The beat was driven by higher ASP and other operating expenses. Blended EBITDA/t stood at INR1,816, which was INR343/t higher than our estimate.

* APAT was up 13% YoY at INR17b (above our estimate of INR12.7b).

* NMDC recorded the highest-ever 1Q production at 10.7mt (up 20% YoY) and the highest-ever 1Q sales volume at 11mt (up 41% YoY).

* Production from Chhattisgarh mines was up 8% YoY at 7.4mt and production from Karnataka mines rose 61% YoY at 3.3mt. Sales from Chhattisgarh mines grew 26% YoY to 7.8mt and sales from Karnataka mines rose 96% YoY to 3.1mt.

* Prices (Incl. Royalty, DMF and NMET) for fines improved 7% QoQ (down 18% YoY) to INR4,511/t, while prices for lumps saw a slight reduction of INR125/t to INR5,521/t

Highlights from the management commentary

* NMDC expects to produce and sell around 47-49mt of iron ore in FY24E and 50mt in FY25E.

* The current EC for all the mines is around 54mt and NMDC plans to undertake incremental capex, which will take the total capacity to 100mt by FY30E under its ‘NMDC 2.0’ strategy.

* NMDC expects to clock higher production and sales YoY in 2QFY24 and as the company carries some inventory on its book, dispatches are expected to be higher than production.

* If prices sustain, NMDC can achieve EBITDA margins of ~40% in the coming quarters.

* The management believe prices have bottomed out and higher volumes will provide cushion to its performance.

* FY24E capex is expected to be ~INR20b (INR6.1b incurred as of Aug’23).

Valuations remain attractive, fundamentals are supportive

* The volume outlook remains robust and NMDC is on track to deliver 50mt of volumes in FY25. Considering the improved outlook on pricing and margins, we have slightly increased our revenue/EBITDA estimates by 3%/3% for FY24 and by 3%/4% for FY25.

* NMDC trades at FY25E EV/EBITDA of 4.1x and FY25E P/B of 1.2x. We maintain our BUY rating on NMDC with a revised TP of INR135.

* Key downside risk: Any major slowdown in domestic market would impact the yearly production and sales targets for NMDC.

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