Buy NMDC Ltd for the Target Rs 98 by Motilal Oswal Financial Services Ltd
Broadly in-line earnings; outlook bright with volume uptick and elevated prices
* NMDC’s reported revenue came in line with our estimate at INR68b, remaining flat YoY but declining 19% QoQ, as muted sequential volumes were offset by better NSR during the quarter.
* Iron ore production stood at 15.1mt (+26% YoY and -7% QoQ), while sales stood at 11.8mt (+2% YoY and -23% QoQ) during the quarter.
* Blended ASP for the quarter stood at INR5,783/t (-1% YoY and +5% QoQ) in 1QFY27. Iron ore ASP stood at INR5,790/t, rising 8% YoY and 19% QoQ during the quarter.
* EBITDA for the quarter stood at INR24.7b (flat YoY and -3% QoQ), in line with our estimate. This translated into an EBITDA/t of INR2,100/t (-2% YoY and +27% QoQ) during the quarter.
* APAT for the quarter stood at INR19.8b (flat YoY and +1% QoQ), in line with our estimate.
Valuation and view
* NMDC reported healthy earnings during the quarter, supported by healthy ASPs, which offset muted QoQ volumes. Going forward, management has guided for production volume to increase to ~60mt in FY27, fueled by an increase in the EC limit and a new mine under the JV. We largely maintain our estimates for FY27/28 and expect volumes and prices to remain elevated, in line with strong demand from steel makers.
* NMDC has planned a strong capex pipeline over various evacuation and capacity enhancement projects, aimed at improving the product mix and increasing production capacity to ~100mt by FY30.
* Additionally, NMDC is expected to venture into business diversification through coking/non-coking coal mines, critical minerals, and rare earth elements, which will be the catalyst for incremental revenue and EBITDA over the long term.
* At CMP, the stock trades at 5.4x EV/EBITDA and 1.6x P/BV on FY28 estimate. We reiterate our BUY rating on NMDC with a TP of INR98 (based on 6.5x EV/EBITDA on FY28 estimate).
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