Prabhudas Lilladher has reiterated an ACCUMULATE recommendation on NMDC Limited, setting a revised target price of Rs 253, reflecting a potential upside of approximately 13.5% from the current market price of Rs 223. Despite weak Q2FY25 results impacted by lower production and pricing pressures, NMDC's future prospects remain promising with enhanced mining capacity and a focus on expanding the domestic steel market. The company is investing heavily in capacity augmentation and infrastructure, aiming for a 7–8% volume CAGR over FY24–27E, which positions it as a key player in India's burgeoning steel sector.

Prabhudas Lilladher Maintains ACCUMULATE on NMDC

Recommendation Overview
Prabhudas Lilladher highlights NMDC’s strong position in the iron ore mining sector despite near-term challenges. The firm maintains its ACCUMULATE rating with a target price of Rs 253, underpinned by robust volume growth expectations and capacity expansion plans.

Q2FY25 Performance: Weak Quarter Amid Monsoon Impact

Revenue and Profitability

NMDC’s Q2FY25 standalone revenue grew 20% YoY to Rs 48 billion, driven by a 17% YoY increase in net sales realization (NSR) to Rs 4,876 per ton.
Consolidated EBITDA grew 16% YoY to Rs 13.9 billion, despite a sequential decline of 41% QoQ due to higher operational costs.
PAT increased by 17% YoY to Rs 12 billion, although lower than market expectations.
Volume Trends

Sales volumes increased 2% YoY to 9.74 MT, supported by robust demand from the Central Government (CG) mines.
Production volumes, however, fell to 8.28 MT, leading to higher fixed costs on inventory.

Strategic Growth Drivers

Price Revisions

NMDC implemented price hikes of Rs 1,000/ton for lumps and Rs 800/ton for fines in October 2024, aiming to improve realizations in Q3FY25.
Capacity Expansion

The company is investing Rs 500 billion to expand its mining capacity to 100 MT per annum (MTPA) by FY31E, ensuring long-term growth in output.
Key infrastructure developments include evacuation systems to streamline logistics and reduce costs.
Focus on Steel Sector

NMDC is positioned to capitalize on India’s growing steel demand, leveraging its high-quality iron ore supply to meet the sector's needs.
The domestic steel market is expected to grow substantially, driven by government-led infrastructure projects.

Financial Adjustments and Future Outlook

Volume and Pricing Assumptions

FY26 and FY27 volume guidance has been adjusted to 45.9 MT and 49.8 MT, respectively, down from earlier projections of 47.2 MT and 52.7 MT.
Iron ore pricing assumptions remain flat due to muted global prices and domestic demand recovery challenges.
Revenue and Profitability Forecast

Revenue is expected to grow at a 10% CAGR, reaching Rs 283 billion by FY27.
EBITDA and PAT are projected to expand at 16% and 15% CAGR, respectively, over FY24–27E.
EBITDA margins are forecast to improve from 34.2% in FY24 to 40.5% by FY27, driven by cost efficiencies and better pricing.

Key Challenges and Risks

Operational Challenges

Higher operating costs, particularly from Legacy mines, have pressured profitability in the short term.
Monsoon-related disruptions impacted production volumes in Q2FY25, leading to inventory build-up.
Delayed Recovery of Receivables

Significant receivables from Rashtriya Ispat Nigam Limited (RINL) and NMDC Steel Limited (NSL), amounting to Rs 45 billion, remain a concern.
These delays could impact cash flow and restrict capital allocation for growth initiatives.

Valuation and Investment Rationale

Valuation Metrics

The stock trades at a forward EV/EBITDA multiple of 5.5x FY26E and 4.8x FY27E, indicating an attractive entry point for long-term investors.
The revised target price of Rs 253 incorporates conservative assumptions on volumes and pricing, balancing near-term headwinds with long-term growth prospects.
Investment Thesis

NMDC’s strategic capacity expansion, focus on high-margin segments, and cost efficiency initiatives support its growth trajectory.
The company's positioning in the domestic steel market and investments in logistics infrastructure provide a competitive edge.