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Volume growth and capacity expansion to drive performance

? NMDC is on track to produce ~46mt of iron ore in FY24E (Apr-Nov production was up 17% YoY to 27.3mt). Over FY25, NMDC is likely to surpass a production of 50mt. The traction in production volumes would be driven by improved capacity and strong domestic demand.

? NMDC is undertaking multiple evacuation and capacity enhancement capex, which are likely to expand the production capacity to 67mt by FY26-27E from the current 51.8mt, and eventually to 100mt by FY28-30E.

? Demand is expected to remain robust going forward, as Tier-I steel manufacturers are expanding their capacities significantly. This expansion is projected to increase the industry-level crude steel capacity to 300mt by FY30-31. This would drive the iron ore demand to ~437mt and we believe NMDC is well placed to capitalize on the growth opportunities ahead.

? In line with the recent price hike observed in the international market, due to higher BoF utilization rates and lower inventory at Chinese ports, NMDC implemented its second price hike in 3QFY24 resulting in a total increase of INR450/t.

? We believe NMDC is very well placed, given the robust demand, capacity additions, and improvement in iron ore prices. NMDC trades at an EV/EBITDA of 5x and a P/B of 1.6x FY26E. We roll forward our estimates to FY26 and reiterate our BUY rating on the stock with a revised TP of INR210 (premised on 6x FY26E EV/EBITDA).

? Key risk: Over 110 iron ore blocks have been auctioned since FY16. Of these ~30 mines are operational. As the remaining captive mines become operational, it would increase the supply of iron ore, thus intensifying the competition for NMDC.

Evacuation and capacity expansion to drive volumes

? NMDC has earmarked INR20b as capex for FY24E and intends to spend a higher amount in FY25E (INR10b of capex incurred in 1HFY24).

? NMDC is currently improving the evacuation volumes from its Chhattisgarh mines. With the addition of Bailadila Deposit 13, the company is expected to add ~10mt of incremental volumes from Chhattisgarh.

? Currently, the evacuation via railways from the Bailadila sector is capped at 30mt. Hence, the doubling of the 150.5km Kirandul-Jagdalpur ‘KK line’ railway corridor will enhance the evacuation capacity to 40mt from 28mt. Over 100km of the line is already completed, and the remaining portion is expected to be finished by Mar’24. The construction of a slurry pipeline spanning over 70km from Bailadila to Nagarnar has been completed, and the order for the remaining capex has been placed.

? NMDC plans to undertake the abovementioned capex, which is expected to increase the total capacity to 100mt under its ‘Vision 2025’ strategic management plan.

Robust domestic demand at play

? Indian crude steel production for 10M-CY23 witnessed the highest growth among the top ten steel-producing nations. Crude steel production rose 8% YoY to ~112.5mt, surpassing that of China (up 1% YoY), Japan (down 3% YoY), the US (down 2% YoY) and the world (flat YoY).

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