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Volume growth drives performance; outlook robust

NMDC on track to produce 50mt by FY25E

* Revenue grew 45% YoY to INR54b in 3QFY24, above our estimate of INR48.5b. Blended ASP stood at INR4,748/t, up 22% YoY and INR503/t higher than our estimate of INR4,245/t.

* EBITDA was up 76% YoY at INR20b, 36% above our estimate of INR14.7b. The beat was driven by higher volumes, higher realizations, lower freight cost, and other expenses, partially offset by higher royalty payment.

* Blended EBITDA/t stood at INR1,762/t, which was INR471/t higher than our estimate of INR1,291/t. APAT was up 84% YoY at INR16.8b (above our estimate of INR12.4b).

* NMDC 3QFY24 production stood at 12.2mt (up 15% YoY and 38% QoQ). Production from Chhattisgarh mines was up 12% YoY at 8.5mt and production from Karnataka mines stood at 3.7mt. NMDC 3QFY24 sales volume stood at 11.4mt (up 19% YoY and QoQ). Sales from Karnataka mines stood at 3.2mt. Chhattisgarh mines demonstrated substantial growth, up 22% YoY and 34% QoQ, to 8.2mt.

* In 9MFY24, revenue stood at INR148b (up 25% YoY); EBITDA stood at INR52b (up 33% YoY) and APAT stood at INR44b (up 31% YoY). NMDC posted the highest-ever 9M production and sales, which stood at 31.8mt and 31.9mt (up 19% and 24%), respectively.

* NMDC declared the first interim dividend of INR 5.75/share.

Highlights from the management commentary

* NMDC has kept its FY24E and FY25E target unchanged at 47mt and 50-51mt, respectively.

* Though FY25E target stands at 50-51mt, there is a possibility to increase the same to 53mt. Kumaraswamy mines that will contribute ~2mt and Kirandul Mine, which will contribute 1-2mt of production, will drive the incremental production.

* The current EC for all the mines is around 51mt and additional EC at the Kumaraswamy mine is expected to add another 3mt and NMDC has already applied for enhancement of EC limits by 10% for Deposit 5 and 11 at Bacheli.

* NMDC has earmarked a capex of INR17.5-18b for FY24 and INR20-21b for FY25. Capex is expected to jump in FY26.

* Net cash as on date stands at INR115b.

Valuations remain attractive; fundamentals are supportive

* Crude steel production in India is expected to grow ~8-9% in FY24 and as on Jan’24 (10months FY24), crude steel production stood at 118.4mt (up 12.9% YoY).

* All the major steel manufacturers in India are planning to double their capacity by FY30-31E. Strong steel demand from flagship government initiatives is expected to drive the need for iron ore.

* NMDC could face some headwinds in ramping up volume due to pending EC clearances across its mines. However, this may be offset by recent price hikes, which has strengthened its ASP.

* We expect the volume challenges (due to pending EC clearances) to be more than offset by the improved outlook on ASP and lower mining costs. We have therefore increased our EBITDA estimates by 12.8%/14.2%/14.8% for FY24/FY25/FY26. NMDC trades at 5.7x FY26E EV/EBITDA and 2x FY26E P/B. We reiterate our BUY rating on NMDC with a revised TP of INR280.

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