Buy NMDC Ltd For Target Rs.107 by Choice Institutional Equities Ltd
Structural Tailwinds Capturing India's Infrastructure Growth with Highgrade Margin
As India’s largest iron ore producer with premium ~64% Fe ore, NMDC is well-positioned to capture incremental demand from a domestic steel supercycle. India’s infrastructure-led expansion is expected to lift crude steel capacity to 300 MnT and iron ore demand by ~50% to ~460 MnT by FY31E, creating ~150 MnT of incremental ore demand, with ~98% of mined ore consumed by the steel sector. Strategically located assets in Chhattisgarh and Karnataka, combined with high-grade ore and domestic auction-linked pricing, support healthy realisation (~INR 4,900– 5,300/t) and resilient EBITDA margin above 35%, limiting exposure to volatile seaborne iron ore prices.
Execution-led Multi-year Ramp-up Scaling up Flagship Hubs to ~110 MnT:
NMDC is set to double its iron ore capacity, from ~51.6 MnT in FY26 to ~110 MnT by FY30E, across five key hubs. Secured environmental clearances extending from the mid-2030s to the 2070s effectively pre-empt regulatory risk, shifting the focus to execution and evacuation infrastructure. Near-term growth is driven by higher-margin Karnataka assets (17 MnT by FY27E) and the NCL JV. At the same time, Chhattisgarh's Kirandul (30 MnT) and Bacheli (35 MnT) emerge as the key volume engines by FY29–FY30E, supported by rail and conveyor expansions.
The Capex Super-cycle Compressing Capital Investment of over 3 Decades into a 5-year Execution Window:
We view NMDC's INR 400 Bn capex programme as a key long-term value-creator, supported by internal accrual funding and environmental clearance (EC)-approved capacity expansion. The planned investments underpin our FY30E volume and margin assumptions, while execution remains manageable, given the company's strong balance sheet. We believe timely execution of the capex programme will be the key catalyst for sustainable production growth and long-term earnings expansion.
Optionality: Non-core optionality provides additional long-term upside through Tokisud coal (2.32 MnT by FY30E), Rohne coking coal (8.0 MnT by FY30E), while investments in gold, diamonds and critical minerals are treated as long-term value enhancers rather than core valuation drivers
Valuation: We initiate coverage on NMDC with a BUY rating and an SOTP – based (for detailed Valuation click here) fair value of INR 107/share (24.7% upside) having implied FY28E EV/EBITDA of ~6.9x, driven by capacity expansion, from ~53 MnT to ~110 MnT by FY30E, strong domestic steel demand and a 15.8% EBITDA CAGR over FY26–FY29E. While the capex cycle may temporarily reduce net cash, the balance sheet remains strong and supports our positive outlook.
Key Risks: Possible lower iron ore prices, delays in capacity expansion, increased capex and adverse regulatory changes could impact earnings.
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