Rising steel volumes, price hikes are driving NMDC to fresh highs

Photo: Mint (Aniruddha Chowdhury/Mint)
Photo: Mint (Aniruddha Chowdhury/Mint)
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 2 min read . Updated: 06 Apr 2021, 10:51 PM IST Ujjval Jauhari

NMDC’s iron-ore volumes will also get a boost from the resumption of operations in its Donimalai mine in Karnataka

After announcing strong volume growth in March, NMDC Ltd’s announcement on price hikes has boosted investor sentiments further. NMDC shares hit a new 52-week high this week. The stock is up more than 83% from its lows in September.

Strong steel demand in the country is driving demand for iron ore, the key raw material used for manufacturing steel. This is boosting prospects of NMDC, the country’s largest iron-ore producer. The company’s iron-ore sales in March jumped 51.1% year-on-year (y-o-y). While the same may also have been aided by the low base of last year, March quarter sales were up 19% sequentially. Notably, the company ended FY21 with sales volume growth of 5.6% to 33.27 million tonnes. This is despite the first half of FY21 seeing significant impact of pandemic-related lockdowns.

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Demand momentum is expected to remain strong, led by growing steel sales volumes. Notably, supplies in the domestic arena are limited and international iron-ore prices continue to remain firm, limiting imports. International iron-ore prices have more than doubled since October and are now at close to $170 a tonne.

Robust growth
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Robust growth

NMDC’s iron-ore volumes would also get a boost from the restart of the Donimalai mine in Karnataka. The company had earlier adjusted its prices downwards owing to the increase in supplies following the restart of the Donimalai mine. However, helped by firm international prices and strong domestic demand, the company raised prices in March, followed by a second price hike in April.

Current iron-ore lump/fines prices are 51%/35% higher versus the average price seen in FY21, say analysts. Needless to say, this will drive the company’s profitability.

Analysts at Antique Stock Broking Ltd expect NMDC’s realizations to jump 33% y-o-y and 5% sequentially with the benefit of the December price hikes reflecting in 4QFY21.

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With this, the company is expected to report Ebitda growth of 126% y-o-y during Q4FY21 while net profit will improve 447% y-o-y and 16% sequentially as per Antique’s estimates.

The rising premiums for mine renewals, however, is a key concern for the company. Various state governments are contemplating levying an additional premium on NMDC’s renewed mining leases. Nevertheless, with tailwinds provided by rising realizations and improving volumes, these concerns are being shrugged off for now.

Analysts at Sharekhan say the robust pricing environment and volume growth bode well for steady Ebitda during FY22 and FY23, despite assuming a higher royalty premium of 22.5% for NMDC’s entire production

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