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Increasing EC limit to drive volumes; capex underway to support higher volumes

* Iron ore production in 1HFY25 stood at 17.5mt (down 11% YoY) and sales volume at 20mt (down 3% YoY). In Oct’24, NMDC reported production of 4.07mt (+4% YoY) and sales volume of 4.03mt (+17% YoY). YTD volumes have been impacted by heavy rainfall. With expectation of ramp-up in 2HFY25, management expects to end FY25 with ~50mt volumes.

* In 1HFY25, net realization increased by 13% YoY to INR5,160/t, owing to a favorable pricing environment (especially in 1QFY25).

* In 2H, we expect 20% YoY growth in volumes (29mt), primarily led by an increase in EC limit to ~51mt recently. NMDC recently announced two prices hikes in Oct’24, with cumulative hikes of INR1,000/t for lumps and INR800/t for fines. As a result, we expect NSR to remain firm in 2HFY25.

* Muted volume in 1HFY25 restricted revenue growth at 10% YoY (INR103b), EBITDA growth at 17% YoY (INR37b), and adj. PAT at 18% YoY (INR32b). In 2HFY25, we expect revenue to grow by 29% YoY, EBITDA by 24% YoY, and APAT by 18% YoY. This performance will be primarily driven by better volume in 2H and healthy realization.

* During Oct’24, NMDC’s total rake movement increased to 506 rakes against 408 rakes in Sep’24. Dispatches to JSTL (Dolvi) for Oct’24 were at 135 rakes (vs. 100 rake in Sep’24) and RINL was 103 rakes (vs. 117 rakes in Sep’24). The combined share of RINL and JSTL in total rake movement stood at ~47% in Oct’24 (vs. 53% in Sep’24).

Robust capex to support volume; incremental EC to drive volumes beyond FY26

* NMDC has got 1.5mt EC for Kumaraswamy mines and is trying to take 10mt, which will take its total capacity to 64mt by next year.

* As of now, NMDC’s total EC limit has reached ~51mt, of which ~19mt each is in Kirandul and Bacheli, and the rest in Karnataka.

* NMDC plans to enhance EC for Kirandul and Bacheli to 30-35mt each in the next 4-5 years.

* It is undertaking multiple capex projects to augment ore production, improve the product mix, and enhance mining capacities.

* The 15mt slurry pipeline from Bailadila to Nagarnar is progressing well with almost all approvals received. Out of 131km, ~73km has already been laid and the rest to be done soon.

Valuation and view

* India’s crude steel capacity is expected to reach 300mt by FY30-31, which will increase the iron ore requirement to ~435-445mt. As NMDC holds 16% of the market share, we believe it is well placed to capitalize on the opportunities ahead.

* NMDC has planned capex for various evacuation and capacity enhancement projects, which are expected to improve the product mix and increase its production capacity to ~100mt by FY29-30E.

* At CMP, NMDC trades at 4.2x EV/EBITDA on FY27E. We reiterate our BUY rating on NMDC with a TP of INR280 (based on 6x Sep’27E EV/EBITDA).

* Key risks: Increasing competition for NMDC - since FY16, +100 iron ore blocks have been auctioned, and when these mines become operational, it would lead to higher supply; 2) NMDC relies heavily on a few customers, which exposes it to business risk.

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