NMDC’s prospects brighten on support from rebounding global iron ore price
Premium- Though analysts feel that higher royalty outgo is likely to remain a key drag on margin, strong volume prospects backed by healthy demand bodes well for NMDC
Shares of NMDC Ltd rose on Thursday following the company's decent earnings performance in the December quarter amid support from a rebound in international iron-ore prices.
International iron ore prices that had dipped to around $100 per tonne levels in November have now crossed $150 a tonne level. Not surprising that stock prices of NMDC have rebounded more than 20% from December lows.
The impact of lower iron ore prices during Q3, however, reflected on the company’s realisations. Basic average domestic iron ore prices declined to ₹4,752 a tonne in Q3 from ₹5,964 in the previous quarter. Ebitda per tonne for the quarter at ₹2,654 a tonne was way lower than ₹3466 a tonne in the previous quarter and ₹2,982 a tonne in the year-ago quarter. With rebounding international iron-ore prices now, the company should see its domestic realisations improve leading to better profitability moving forward.
Meanwhile, iron ore demand in the country also remains strong. The company’s sales volumes are finding support from the restart of production at Donimalai mines in Karnataka. Iron ore sales volume improved 6% YoY and 10% sequentially to 9.85 million tonnes. The volume trajectory thereby remains favourable for prospects of NMDC.
Analysts at Elara Securities (India) Private Limited said “after witnessing a gradual decline during Q2-Q3FY22, iron ore prices have seen some recovery in recent times and we do not see any major correction from the current levels in the near term". Though analysts feel that higher royalty outgo is likely to remain a key drag on margin, strong volume prospects backed by healthy demand bodes well for the company.
Meanwhile, all eyes are on commissioning and demerger of the 3 mt integrated flat products Nagarnar steel plant in Chhattisgarh.
Analysts at Motilal Oswal Financial Services Ltd said “the entire integrated commissioning will take about 4-5 months in our view as the company is initially building coke stock to feed the blast furnace".
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However, it is the demerger of a steel manufacturing business that can provide further improvement in outlook, feel analysts. Demerger and listing have already been approved by the NMDC board. “The demerger approval of the upcoming steel plant is positive and should strengthen return ratios and hone its focus on the core mining business," said analysts at Elara Securities.
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