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Buy This Navratna Mining Stock For A Target Price of Rs. 200 Says Sharekhan

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NMDC Ltd, a large-cap company with a market valuation of Rs 44,222.84, is involved in the mining and metal sectors. The National Mineral Development Corporation (NMDC), a Navratna Public Sector Enterprise under the Ministry of Steel, Government of India, is India's largest producer of iron ore. Following recent iron ore price hikes, brokerage company Sharekhan has assigned the stock a buy call rating with a target price of Rs. 200. Currently, the stock is trading at a market price of Rs 152.60 on the NSE as of 8 Mar, 3:29 pm IST.

 

Investment rationale

Investment rationale

Sharekhan has noted "NMDC has taken cumulative price hike of Rs700/Rs500 for iron ore lump/fines in the last two months, but Indian iron ore price are still at steep discount of 43% to international iron ore price, which has seen a massive rally of 64% in the last few months. We expect iron ore prices to remain firm in the near term as global steel price are recovering due to geopolitical tensions between Russia and Ukraine. Price hikes would result in a gradual margin recovery for NMDC."

According to the brokerage "NMDC's iron ore production and sales volume grew strongly by 26%/25% during FY22YTD and the same gives us confidence with respect to robust growth in Q4FY22. The management has guided for sales volume of 44-45 mt/47-50 mt/50 mt plus for FY22E/FY23E/FY24E."

The brokerage further said "NMDC's management has guided for steel plant demerger by March-April 2022 and listing on stock exchanges will take 2-3 months post demerger. The demerger would strengthen the balance sheet (transfer of the steel plant's debt to NSL and reduced cash burn for steel plant) and improve return ratios while increasing cash flows could result in a likely high dividend payout (current dividend of Rs. 14.74/share implies yield of 10%) going forward."

Buy for a target price of Rs 200
 

Buy for a target price of Rs 200

Sharekhan has claimed "NMDC's valuation of 2.4x its FY2023E EV/EBITDA (excluding value of the steel plant at 1x CWIP) is attractive, the stock offers a high dividend yield of ~10% and has a strong balance sheet with cash of ~Rs. 9000 crore. Potential significant value unlocking (as the street is ascribing only 50% value to CWIP of Rs. 19,000 crore) from the steel plant's demerger is key catalyst for NMDC. Hence, we maintain a Buy on the stock with an unchanged PT of Rs. 200."

"A sharp fall in domestic and international iron ore price, potential delay in volume pick-up, and royalty premium of more than 22.5% for mine lease renewals could impact earnings and valuation. A delay in the demerger and strategic sale of the steel plant could impact the value unlocking timeline," are the key risks of the stock as per the brokerage.

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Read more about: stocks to buy
Story first published: Tuesday, March 8, 2022, 15:33 [IST]
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