NMDC has levers for a better March quarter
1 min read . Updated: 16 Feb 2023, 12:18 PM IST
PremiumNMDC’s Ebitda would double quarter-on-quarter on the back of higher iron ore prices as well as volumes, analysts say
NMDC Ltd’s December quarter (Q3FY23) results did not move investor sentiments in a meaningful way. But there are levers for the state-owned iron producer to see a better March quarter (Q4FY23).
NMDC has taken two consecutive price hikes in January with the price of lump ore and fines currently at Rs4,400 per tonne and Rs3,910 per tonne, respectively. This compares to average lump price of Rs3,840 and fines price of Rs2605 in Q3.
Increase in prices would aid average sales realization in Q4, which was a sore point last quarter. In Q3, this measure was lower by almost 35% year-on-year (y-o-y) to Rs3,883 per tonne led by lower iron ore prices and weak volumes.
Also, Q4 is a seasonally strong quarter, which would support volume growth. The provisional sales volume in January was 3.8 million tonnes, higher by nearly 16% from December levels.
“We forecast Q4FY23 Ebitda would double quarter-on-quarter (but remain over 10% lower year-on-year) on the back of higher iron ore prices as well as volumes," said analysts at Nuvama Research in a report on 15 February. Ebitda is earnings for interest, tax, depreciation and amortization. In Q3, this metric stood at Rs1,141, down by over 56% y-o-y.
Further, China’s gradual reopening of its economy is a plus given that the country is a key market for metals. This would support iron ore demand in international markets.
Prices of iron ore in international markets have rebounded from a recent low of $80 per tonne in November 2022 and are currently over $120 per tonne, said analysts at Motilal Oswal Financial Services in a report on 15 February.
However, it remains to be seen if NMDC can take further price hikes. But it is worth noting here that prices of lumps and fines are still down by 24-28% from April-end levels, which is before the government raised export duty on iron ore.
To be sure, sustained strong demand environment is crucial for the company to meet its FY24 production guidance of 50 million tonnes. Investors would do well to track the progress on this front. Also, improvement in realization and profit metrics would act as catalysts for the NMDC stock, which is down by almost 32% from its 52-week high of Rs175.35 apiece seen in April.