NMDC Ltd is moving briskly towards its volume target for FY24. The state-owned iron ore producer aims to clock sales volume in the range of 47-49 million tonnes this fiscal year. In the first five months of FY24 (5MFY24), NMDC’s sales volume stood at 17.4 million tonnes, up by nearly 30% year-on-year. This means for the rest of FY24, the company needs to clock a relatively slower growth of about 23% to meet the mid-point of its guided range.
“We believe NMDC is likely to show robust volume growth as focus returns to mining business post steel plant demerger,” said analysts at ICICI Securities in a report on 13 September.
NMDC’s volume performance is encouraging but the iron ore prices must gather momentum to aid realization. In the June quarter, NMDC’s sales volume was up by 41% year-on-year but the average sales realization was down by nearly 20% to ₹4,915 per tonne. The last price revision by the company was in mid-August, which was a cut in lump ore and fines price by 6-7% to ₹4,650 per tonne and ₹3,910 per tonne, respectively.
For iron ore prices to see a meaningful upside movement, the demand for steel needs to rise adequately. Iron ore is a key raw material used in the production of steel. In domestic markets, steel price is inching up and that is a plus. The price of domestic hot rolled coil in September so far is up by 2% versus the average seen in August, according to SteelMint. However, a worry is that demand conditions remain muted globally. Here, how the Chinese economy shapes up is in focus given that the country is a crucial market for metals.
But there is a bright spot. The international iron ore prices are climbing, which in turn augurs well for the domestic prices. Meanwhile, NMDC’s return on equity (RoE) ratio is likely to see an upward trajectory. “With significant capital allocation towards steel plant since FY12, we saw NMDC’s RoE gradually reducing from a healthy 33.6% in FY12 to 21.7% by FY21,” said the ICICI Securities report.
RoE may improve further from current level of 22% as mining business takes centre stage and the steel plant is demerged, they added.
Separately, NMDC expects to incur capital expenditure of ₹2,000 crore in FY24. This is expected to increase further as the company aims to increase its capacity to 100 million tonnes by FY30.
Shares of NMDC have risen by almost 16% in 2023 so far.
A further boost to investor sentiments would come from consistent volume performance and potential price hikes.
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Updated: 13 Sep 2023, 10:14 PM IST