After taking a hit in the final quarter of FY20 due to the Covid-19 impact, NMDC Limited, the country’s largest iron ore miner, is sticking to last year's target of 32 million tonne (mt) production this fiscal.
“We hope to achieve what we did in FY20 and that itself will be great positive for the company. The April month was a complete wash out for us as nearly 50 per cent of production declined. But in May, our production picked up and we have done 4.1million tonne production and sales,” Amitava Mukherjee, director finance at NMDC, told Business Standard.
State-owned NMDC was unable to meet its production target last year. The company produced 31.49 mt and sold 31.51 mt of iron ore during 2019-20, as against production of 32.36 million tonne and sales of 32.36 mt during the previous year.
“We would have beaten the FY19 target in FY20 had covid-19 not been there. This fiscal, even if there is production or sales slippage in the first quarter, we should be able to cover it up over the next nine months of the year,” Mukherjee added.
The company's 4Q FY20 results witnessed EBITDA declining 23 per cent year-on-year basis on lower volumes and weaker-than-expected realisation.
With regard to realizations in FY21, where outlook for the domestic steel demand looks bleak amid slowed economic growth, NMDC remained clueless about ore price movement during the fiscal.
“We cannot speculate about ore pricing during the year. We will have to take a call as and when, so I rather refrain from speaking on pricing at this juncture,” said Mukherjee.
Brokerages are, however, bearish on iron ore prices in the near term. "While we expect the recent iron ore price cuts to support volumes in the near term, we expect prices to recover from 2HFY21. We have lowered our FY21 and FY22 EBITDA estimates by 12 percent and 13 percent, respectively,” Motilal Oswal Research said in its report.
During April–May, NMDC has taken a cumulative price cut of Rs 900 a tonne. Though the challenging business climate is expected to prevail this fiscal, too, NMDC hopes to commission its steel plant and could also look at hiring at the plant in a phased manner.
“Nearly 95 percent of our steel plant is ready but its commissioning depends on international air travel as we need foreign experts for this plant since it will employ overseas technology to the plant,” explained Mukherjee.
NMDC is setting up a 3-million tonne per annum (mtpa) steel plant in Chhattisgarh which would need about 5,500 employees.
“For the steel plant, we need to hire and it will be a combination of contract-based labour, manpower coming from other PSU of the steel industry among other options. For our mining operations, however, we do not see much hiring as technologically we are equipped to handle these operations,” he added.
While other corporates are looking to conserve cash in the current business scenario, NMDC has no conscious plans for the same. “We have cash of close to Rs 2,000 crore in FY20 and do not see any reason to have a strategy for cash conservation. We are comfortable,” Mukherjee said.
As on March 31, 2020, the company’s cash stands at Rs 2,400 crore which has come down drastically from Rs 18,000 crore in FY15. While net sales in the period under review (FY15-FY20) has tried to remain stable, margins have declined to 30 percent in FY20 from 80 percent in FY15.