Sharekhan's research report on NMDC
We expect reopening of China w.e.f January 8 2023, will lead to improved steel production both in China as well as India, thus improving iron ore volumes. Removal of export duty on iron ore, pellet and steel will lead to further price hikes in the coming quarters. Prices of Chinese fines have rallied 35% since November 1, 2022, and NMDC fines are at 67% discount to Chinese fines versus the long-term average of 40%, which provides a good cushion for further price increases by NMDC. The disinvestment of NMDC Steel Limited to a strategic buyer will add value to the company’s stakeholders. Since the core mining business is not capital intensive, we expect higher free cash flows and increased dividend pay-out ratio by NMDC in the future. With steady margin improvement and 13% volume CAGR over FY2023-FY2025E, we expect Revenue/EBITDA/PAT CAGR of 11%/14%/11% over FY2023-FY2025E. At the CMP, we expect a dividend yield of 8.5% for FY2025E.
Outlook
We upgrade our rating to Buy with a revised PT of Rs. 145 to reflect our earnings estimate. At the CMP, the stock trades at 3.8x/3.4x its FY2024E/FY2025E EBITDA.
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