1 month ago
Motilal Oswal is bullish on NMDC recommended buy rating on the stock with a target price of Rs 260 in its research report dated March 28, 2024.
Broker Research
March 29, 2024 / 12:42 PM IST
Buy
Motilal Oswal's research report on NMDC
The domestic demand for iron ore is expected to move in tandem with infrastructure and construction growth. NMDC, being the largest domestic iron ore miner, is expected to produce ~45mt of iron ore in FY24 (production for 11MFY24 has crossed 40.2mt), surpassing production of over 40mt for the third year in a row. It is well on track to exceed 50mt of production in FY25E and 55mt in FY26E. NMDC has planned capex for several evacuation and capacity enhancement projects, which should improve the product mix and augment its production capacity to ~100mt by FY29-30E. The domestic steel sector is well placed compared to its global peers and the domestic crude steel capacity is expected to reach ~175mt in FY24 with ~82% capacity utilization. This would translate to ~282mt of iron ore requirement in FY24E, with NMDC commanding a ~16% market share. Similarly, as crude steel capacity inches up to 300mt by FY30-31, total demand for iron ore would be ~435-445mt. We believe NMDC, with a dominant presence in the domestic market, is well placed to capitalize on the growth opportunities ahead.
Outlook
NMDC trades at 4.5x FY26E EV/EBITDA and 1.7x FY26E P/B. We reiterate our BUY rating on the stock with a TP of INR260. Key risks: 1) ~105 iron ore blocks have been auctioned since FY16 (~57 blocks auctioned in FY23 and FY24E) of which ~30 mines are operational; when the remaining captive mines become operational, it would lead to an increase in the supply of iron ore, thus increasing the competition for NMDC; 2) NMDC relies heavily on a few customers, which exposes the company to business risk.
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