Buy NMDC Ltd for the Target Rs 98 by Motilal Oswal Financial Services Ltd
Well positioned to capture growth despite global supply headwinds
We remain constructive on NMDC, the India's largest iron ore producer (~16% market share), as it is uniquely positioned to benefit from India's multi-year steel capacity expansion targets while remaining largely insulated from global iron ore price volatility. Strong domestic demand, visible volume growth, accelerated capacity expansion and improving logistics provide a strong earnings growth runway in the near to medium term. Additionally, NMDC has net cash of INR55b as of FY26 and is expected to generate ~INR200b of OCF over the next two years, supporting the capex plan without overleveraging. At CMP, the stock trades at 5.6x FY27E EV/EBITDA. We reiterate our BUY rating on NMDC with a TP of INR98 (based on 6.5x FY28E EV/EBITDA
Key risks:
a) change regulatory policy
b) execution risks
c) global price slump
* India's iron ore demand is entering a structural growth phase, supported by the estimate increase in crude steel capacity to ~300mtpa by FY30 from 233mtpa in FY26. The capacity with BF-BOF route is expected to expand to 140-165mtpa, translating into domestic iron ore demand of ~380-400mt. With large and long-life reserves across Chhattisgarh and Karnataka along with negligible import substitution risk, we believe NMDC remains the largest beneficiary of this demand uptrend.
* NMDC witnessed a strong recovery with 53mt production (+21% YoY) in FY26 and has guided for ~60mt in FY27, supported by the ramp-up of existing mines and newly added mine at Bailadila (Deposit-4 and Deposit13). Key growth drivers include: Deposit-4 (1mt in FY27; 7mtpa over 2-3 years), Deposit-13 (0.5mt in FY27; 10mtpa initially with expansion plan to 20-21mtpa), Deposit-14 and NMZ (~1mt each), Kumaraswamy (+1.3mt), and Deposit-5 (+2mt to 12mt post conveyor commissioning).
* NMDC is entering an investment cycle, with capex rising from INR33b in FY26 to INR60b in FY27, followed by INR70-100b annually during FY28-30, underpinning the 100mt expansion roadmap across the Kirandul (21mtpa to 30mtpa) and Bacheli (18-19mtpa to ~35mtpa) complexes.
* The global iron ore market is expected to see ~300mt of incremental supply over the next 4-5 years, led by Simandou (100-120mtpa), brownfield expansions by BHP, Rio Tinto and Vale, and ~120mt of replacement capacity. However, we expect seaborne iron ore prices to remain rangebound at USD100/t. NMDC remains relatively insulated from global supply pressure as domestic iron ore prices continue to trade at a ~30% discount to import parity, making imports economically unviable for Indian 60 steelmakers.
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