Buy NMDC Ltd For Target Rs.80 by Motilal Oswal Financial Services Ltd
In-line performance; strong volume and healthy NSR drive earnings
Key Result Highlights - Consolidated
* NMDC reported revenue growth of +21% YoY (+33% QoQ) to INR66b in 3QFY25, in line with our estimate. The growth was primarily driven by strong volume and NSR growth.
* Iron ore production stood at 13.3mt (+9% YoY/+61% QoQ), while sales stood at 11.9mt (+5% YoY/+20% QoQ) during the quarter. ASP for the quarter came in at INR5,500/t, up 16 YoY and 11% QoQ, driven by a sustained price hike.
* EBITDA stood at INR23.7b (+18% YoY/+71% QoQ), in line with our estimate of INR22.4b. NMDC reported EBITDA/t of INR1,987/t, up 13% YoY and 43% QoQ.
* APAT was INR19b (+13% YoY/+59% QoQ) against our estimate of INR18b.
* For 9MFY25, the company reported revenue of INR169b (+14% YoY), EBITDA of INR61b (+17% YoY), and adj. PAT of INR51b (+16% YoY). For 9MFY25, iron ore sales volume came in at 32mt (flat YoY), avg. blended NSR stood at INR5,290/t (14% YoY), and EBITDA/t was at INR1,910/t (+17% YoY).
Key conference-call highlights
* NMDC has guided for volume of 16mt in 4QFY25, achieving its volume guidance of 50mt for FY25.
* Going forward, management expects volume of 53mt in FY26 and 60mt in FY27, with an incremental loading of ~6-7mt from two new lines (line-4 in Bacheli and line-13 in Kirandul).
* Management indicated that NMDC was able to hold up iron ore prices in a steel price downturn and aims to sustain the prices despite severe headwinds.
* The royalty % to sales was higher in 3QFY25 on account of higher production volume, while sales volume remained comparatively lower.
Valuation and view
* In 3QFY25, volume growth picked up QoQ after a sluggishness in 1HFY25 due to general elections and monsoon. NMDC took significant price hikes during 9MFY25 (+14% YoY) to offset the adverse volume impact, translating into a healthy operating profit.
* We expect that going forward, a healthy volume pick-up and stable realization would drive healthy operating growth. Therefore, we largely maintained our estimates for FY25-27.
* NMDC has planned a capex for various evacuation and capacity enhancement projects, which are expected to improve the product mix and increase its production capacity to ~100mt by FY29-30.
* At CMP, NMDC trades at 3.2x EV/EBITDA on FY27E. We reiterate our BUY rating on NMDC with a revised TP of INR80 (based on 4.5x FY27E EV/EBITDA).
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