Buy NMDC Ltd for the Target Rs. 84 by Motilal Oswal Financial Services Ltd
In-line performance; lower cost drives earnings
Consolidated result highlights
* Revenue stood in line with our estimate at INR67.4b, rising 25% YoY but declining 4% QoQ.
* Muted volumes QoQ were offset by healthy NSR.
* Iron ore production stood at 12mt (+31% YoY and -10% QoQ), while sales stood at 11.5mt (+14% YoY and -9% QoQ) during the quarter.
* ASP for the quarter reached INR5,851/t (+9% YoY and +6% QoQ) as iron ore prices remain elevated.
* EBITDA stood at INR24.8b (+6% YoY and +21% QoQ), in line with our estimate.
* EBITDA/t rebounded to INR2,152/t (-7% YoY and +33% QoQ), against our est. of INR1,956/t during the quarter.
* APAT for the quarter stood at INR19.7b (flat YoY and +33% QoQ), against our estimate of INR18b during the quarter.
Valuation and view
* In 1QFY26, volume growth was sluggish due to the early onset of monsoon.
* NMDC implemented steady price hikes, which offset the adverse volume impact, leading to healthy operating profit.
* Going forward, we expect volumes to pick up steadily to ~50mt in FY26 and 55mt in FY27, fueled by an increasing EC limit. We largely maintain our estimates for FY26-27, driven by stable realization and healthy volume-led operating growth.
* NMDC has planned capex for various evacuation and capacity enhancement projects, aimed at improving the product mix and increasing production capacity to ~100mt by FY29-30.
* Additionally, NMDC had net cash of INR63b as of FY25, and is expected to generate OCF of ~INR190b over the next two years. This will support its capex plan without overleveraging.
* At CMP, the stock trades at 4.1x EV/EBITDA on FY27E. We reiterate our BUY rating on NMDC with a TP of INR84 (based on 4.5x EV/EBITDA on FY27E).
* Key risks – a) rising competition from captive iron ore mining and 2) Karnataka mineral tax demand, which could impact earnings if ruled against NMDC.
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