2:1 Bonus, 10:1 Split, 3.2% Dividend Yield: BUY Navratna PSU Iron Ore Stock NMDC For Short Term Target Rs 287

Navratna iron ore company backed by the government, NMDC is among the top picks for June month. The stock is recommended to buy for a short-term target of Rs 287. The reason for bullishness is due to its long-term growth prospects via raising CAPEX and strong business profile. NMDC is currently the largest iron ore producer in the country.

On June 20, NMDC share price ended at Rs 273.20 apiece, up by 4.24% on BSE with a market cap of Rs 80,064.15 crore. The stock is nearing its 52-week high of Rs 286.35 apiece.

From April to May 2024, the company's total production is at 5.82 MT down from 7.22 MT in a similar period a year ago. Cumulative sales stood at 6.35 MT, also lower from 7.05 MT in April - May 2023.

With effect from May 28, 2024, NMDC has fixed the lump ore (65.5%, 10-40mm) price at Rs 6,450 per ton, and fines ( (64%,-10mm) at Rs 5,610 per ton.

Technical View:

As per BP Wealth, the stock shows a strong primary trend. The price is currently trading at the conjecture of its 20 and 50 daily MA and 20 weekly MA and the previous breakout zone. This offers immediate and strong support. Also, its RSI across daily and higher timeframes are trading well above their media indicating thrust in the price momentum.

Moreover, the brokerage highlighted that though the EPS strength remains mediocre, it shows improving relative strength compared to the 50 index and sectorial strength.

Fundamentals:

BP Wealth in its note said, "We recommend to BUY NMDC at CMP-262 for the target of 287 with a stop loss of 252 in the short term."

The brokerage highlighted two factors as investment rationale. They are:

1. Long-term growth strategy through increasing capex:

In FY24, the company reported a CAPEX of approximately Rs 21 billion. A somewhat similar CAPEX amount is expected, ranging from Rs 15-20 billion in FY25.

Looking ahead, the company has outlined an ambitious plan to invest Rs. 500 billion over the next five years. This substantial investment will be allocated across various projects and processes, underpinning NMDC's strategic growth initiatives. Its significant project includes the expansion of its pellet plant and beneficiation plant. The objective is to triple the current capacity from 2 million tonnes (mt) to 6 mt.

Although the project faced delays due to necessary layout redesigns, it is now on track and expected to be completed by the third quarter of FY25. This expansion is a critical component of NMDC's long-term growth strategy, aimed at enhancing production capabilities and optimising operational efficiencies.

2. Strong business profile as the largest iron ore producer in the country:

NMDC is India's largest iron ore producer, with an average annual production capacity of 45.1 million tonnes (mt). NMDC has seven iron ore mining leases (five in Chhattisgarh and two in Karnataka) with a total reserve of 1,697 MT, providing high revenue visibility with a mining life of over three decades.

The company has environment clearances for all the mines and long-term validity of licences (till 2035-2038) for six of the seven mines. The licence for the Kumaraswamy mine in Karnataka was renewed in FY23 and is valid till October 2042. NMDC has taken two price hikes in Q1FY25, which would improve its ASP and earnings. With the requisite approvals in place, production is likely to ramp up in FY25 and FY26, which will provide strong growth comfort.

The Navratna company owns and operates highly mechanized iron ore mines in Chhattisgarh and Karnataka and has its registered office in Hyderabad, Telangana. NMDC is considered to be one of the low-cost producers of iron ore in the world. It also operates the only mechanized diamond mine in India at Panna, Madhya Pradesh.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.