After posting the highest ever annual production of iron ore (at 42mt) in FY22, NMDC has raised the bar and is now targeting 46mt for FY23E and even higher for FY24E. According to domestic brokerage house Motilal Oswal, the growth will be driven by both the Chhattisgarh and Karnataka regions.
The brokerage has a buy rating on metal stock with a target price of 220 per share (from 200), implying a potential increase of more than 30% from current levels. Shares of NMDC have gained almost 25% so far in 2022 (YTD).
“We grow our SOTP-based TP to NMDC’s mining business by 5x FY23E EV/EBITDA and steel plant CWIP at 75% of total capex (from 50% earlier),” the note said. However, the key risk to the brokerage’s call is a slowdown in China, which could push steel and iron ore prices lower.
Further, Motilal Oswal believes that the demerger of NISP, which is likely to be completed by 3QFY23E, will be the major trigger for the stock. Thereafter, the government may seek bids from potential suitors, which may lead to the possibility of selling the government’s stake in the steel plant to the new owner.
“With more iron ore mines auctioned and steel companies achieving self-sufficiency, the government’s long-term approach to tax iron ore exports (to discourage the same) may be a second thought. This may lead to re-rating of NMDC as it plans to increase its capacity to 70 million tonnes in the near future.”
According to Motilal Oswal, as long as the international thermal coal price remains strong, domestic sponge iron, secondary rebar and pellet prices will remain strong and so will the domestic iron ore price.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.