BUY Navratna PSU Mineral Stock For Rs 301 Target Price, 18% Potential Upside Ahead: LKP Securities

Navratna PSU in the minerals sector, NMDC Ltd is recommended to buy on BSE and NS due to its operational capacity, expansion plans, and strong net cash position. NMDC which is currently trading near Rs 255 levels, has surged by as much as 20% on BSE on a year-to-date basis. But NMDC is a multi-bagger with gains of nearly 136% in a year.

NMDC share price is currently at Rs254.60 apiece on BSE with a market cap of Rs 74,613.22 crore. The stock's 52-week high and low is at Rs 286.35 apiece and Rs103.85 apiece respectively.

In its latest report, LKP Securities highlighted that NMDC reported the highest ever Iron ore production and sales number during FY24, in Q4FY24. Revenues grew 11% YoY to ₹64bn in Q4FY24, which was in line with our estimates (QoQ up 20%) led by better realizations during the quarter. Blended ASP stood at ₹5,191/t, up 10% YoY and ₹442/t higher than our estimate of ₹4,749/t. Iron ore production came in at 13.3mt down 6% YoY and up 8% QoQ, while sales stood at 12.5mt +1% YoY and +10% QoQ.

Further, in FY24 NMDC's production volume stood at 45.1mt (+10% YoY), and sales volume was 44.5mt (+16% YoY). Revenue came in at ₹213 bn (+21% YoY), EBITDA was ₹73 bn (+21% YoY), and APAT stood at ₹56 bn (+18% YoY). EBITDA/t stood at ₹1,640 (+4% YoY) in FY24, it said.

Also, the company has declared a final dividend of Rs 1.50 per share for FY24. This is in addition to the Interim Dividend of Rs. 5.75 per equity share already declared and paid during the financial year. The said Final Dividend, if declared at the ensuing AGM, will be paid to the shareholders within 30 days from the date of the AGM.

Moreover, the company has announced its May 2024 production and sales date of iron ore. In May, the production stood at 2.34 MT, down from 3.71 MT. While sales also dipped to 2.82 MT from 3,62 MT in May 2023.

Cumulatively, from April to May 2024, the first two months of FY25, NMDC posted production of 5.82 MT down from 7.22 MT in the corresponding period of the previous year. Sales also dipped to 6.35 MT versus 7.05 MT in April-May 2023.

Moving ahead, LKP's note said, "The benefits of the price increases implemented in Q1FY25 are expected to support future growth as domestic demand remains robust. Management has detailed a long-term capital expenditure program amounting to ₹500bn, aimed at increasing mining capacities to approximately 100mt by FY31E. This program includes investments in evacuation infrastructure and enhancements to the distribution network. Board approvals for approximately ₹50bn in capital expenditure have been obtained, with peak annual capital expenditure of ₹80-90bn projected to commence in FY27E."

On the valuation, LKP added, "On the back of NMDC's strong operational capacity, aggressive expansion plans, robust net cash position and continued strong tailwinds for domestic steel demand we expect NMDC to clock Revenue/EBITDA/PAT CAGR of 9%/16%/14% over FY25-26E. At CMP, the stock is trading at 6.8x/5.3x EV of FY25E/FY26E EBITDA. We maintain our 'BUY' rating with a revised TP of ₹301 (earlier ₹297) valuing at 6.7x EV/EBITDA of FY26E."

This is a potential upside of 18% from the current price level in NMDC.

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. It owns and operates highly mechanized iron ore mines in Chhattisgarh and Karnataka and has its registered office in Hyderabad, Telangana.