2:1 Bonus Issue: Midcap Metal Stock NMDC Share Price Declines 4% Post Q2 Results; Should You Buy?

The shares of National Mineral Development Corporation (NMDC) fell over 4% following its Q2FY25 results, with analysts flagging key challenges in its latest earnings. Despite the market reaction, NMDC surprised investors with its first bonus share issue in 16 years, in the proportion of two shares for every one held.

Q2 Earnings

For the quarter ending September 2024, NMDC, India's state-run mining giant, reported a 16.7% year-on-year increase in consolidated net profit to Rs 1,195.6 crore. While this was an improvement over the same quarter last year, the profit marked a steep 39% decline sequentially. Revenue from operations rose by 22.5% YoY to reach Rs 4,918 crore but faced a 9% decline when compared to the previous quarter.

EBITDA also experienced notable fluctuations. While it rose 16.4% YoY to Rs 1,385.7 crore with an EBITDA margin of 28.2%, this margin represented a slight dip from the previous year's 29.7%. Sequentially, NMDC's EBITDA dropped 39%, reflecting pressures from weaker realizations, higher costs, and reduced volumes. Analysts attributed this EBITDA miss largely to an unfavourable impact from inventory adjustments and rising other expenses.

JP Morgan cited NMDC's challenging quarterly performance and maintained an 'Underweight' stance with a target price of Rs 210 per share, reflecting a downside potential of over 6% from the current trading price of Rs 223. Despite this cautious outlook, JP Morgan acknowledged that NMDC's inventory-related challenges may be temporary and could see a reversal in the latter half of FY25.

NMDC's stock performance has been mixed. Year-to-date, NMDC shares have risen over 6%, trailing the Nifty 50 index, which posted an 11% increase over the same period. In the past year, however, the stock has generated returns of nearly 30%.

Bonus Issue

NMDC's board approved a bonus issue of two shares for every one held. The last time NMDC issued a bonus was in 2008 when it offered two bonus shares per one share held. The record date for this issue will be announced soon, and investors are expected to benefit from the free additional shares.

NMDC continues to be one of India's leading public sector enterprises, focusing on the exploration and production of iron ore, diamonds, and sponge iron, while also generating wind power. The company's strong market presence and revenue growth underscore its importance in the Indian metals sector. NMDC's standalone net profit for Q2FY25 rose 23% YoY to Rs 1,269 crore, while its revenue surged 20% on-year to Rs 4,807 crore.

However, rising costs remain a challenge, with expenses excluding royalties increasing sequentially. The company's weaker-than-expected EBITDA and operating profit, were impacted by cost pressures and inventory adjustments.

NMDC's shares were trading at Rs 227.70 on the NSE, down over 2% as of 12:50 pm on November 12. The recent decline, attributed to the Q2 performance miss, highlights investor caution despite the company's efforts to reward shareholders through the bonus issue.

*Inputs from Moneycontrol*