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Earnings below estimates; outlook remains bright

Highlights of the 4QFY24 consolidated results:

*NMDC’s revenue was in line with our est. at INR65b (YoY/QoQ: +11%/ +20%), led by better realizations during the quarter. Iron ore production came in at 13.3mt (YoY/QoQ: -6%/ +8%), while sales stood at 12.5mt (YoY/QoQ: +1%/ +10%). ASP for the quarter improved to INR5,174/t (YoY/QoQ: +10%/+9%) vs. our estimate of INR4,955/t.

*EBITDA came in at INR21b (YoY/QoQ: -3%/+5%) and was below our estimate of INR23b. The miss was due to higher operating costs and royalty & cess. EBITDA/t stood at INR1,676 (YoY/QoQ: -4%/-5%) vs. our estimate of INR1,819 in 4QFY24.

*APAT for the quarter was INR14b (YoY/QoQ: -14%/ -19%) vs. our est. of INR19b. APAT was hit by soft operating performance and a higher tax outgo.

FY24 performance highlights:

*Production volume stood at 45.1mt (+10% YoY), and sales volume was 44.5mt (+16% YoY).

*Revenue came in at INR213b (+21% YoY), EBITDA was INR73b (+21% YoY), and APAT stood at INR57b (+18% YoY).

*EBITDA/t stood at INR1,640 (+4% YoY) in FY24.

*The Board declared a final dividend of INR1.5/share (along with an interim dividend of INR5.75/share) during FY24.

Highlights from the management commentary

*Management reiterated its volume guidance of 50mt for FY25 and expected to produce ~54mt of iron ore in FY26.

*In FY25, incremental 2mt is likely to be produced from Karnataka and 3mt from Chhattisgarh mines.

*The royalty % to sales increased to 47% during 4QFY24. Management expects royalty expenses to be 43% of revenue going forward.

*NMDC incurred a capex of ~INR21b during FY24 and it guided to spend in the similar range of INR15-20b for the current fiscal.

*Over the next few years, it is targeting a production of 100mt.

*Currently, NMDC Steel’s monthly production run-rate is 0.12mt. NMDC Steel is procuring iron-ore from NMDC.

Valuations remain attractive; fundamentals supportive

*While the 4QFY24 performance saw some pressure on profitability, the outlook remains bright. NMDC has taken two price hikes in 1QFY25, which would improve its ASP and earnings.

*With the requisite approvals in place, production is likely to ramp up in FY25 and FY26, which will provide strong growth comfort.

*In FY24, India’s crude steel production witnessed 15% YoY growth (~144mt) and is expected to clock 8-10% CAGR in the near term. All the major steel manufacturers in India are planning to double their capacities by FY30-31E. Thus, steel demand will remain robust, backed by government initiatives for infrastructure. This will drive the overall demand for iron ore.

*With challenges due to the pending EC clearances behind, volume growth is expected to be robust. With two price hikes in 1QFY25 itself, the ASP is anticipated to improve. We raise our EBITDA estimates by 9%/7% for FY25/26 to factor in a better realization outlook. NMDC trades at 5.9x FY26E EV/EBITDA. We reiterate our BUY rating with a revised TP of INR300 (premised on 7x FY26 EV/EBITDA).

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