Buy This Navratna PSU Stock, Has A Potential Upside of 50%: Emkay Global

Emkay Global has placed a buy call on NMDC Limited with a target price of Rs180 per share. The last traded market price of NMDC Limited is Rs 117.05 per share, which is up by 1.21% on intraday basis. The brokerage sees a potential upside of 50% on the stock price of NMDC Limited.

NMDC Limited, a large cap company having a Navratna status, is Public Sector Enterprise under the Ministry of Steel, Government of India is the single largest producer of iron ore in India. Its current market capitalisation is Rs 34,302.74 crore. NMDC Ltd was established on November 15 1958 as a government company with the name National Mineral Development Corporation Pvt Ltd.

It is involved in the exploration of iron ore, copper, rock phosphate, limestone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, coal etc. The Company is producing about 35 MTPA of iron ore from its major iron producing units i.e. from Bailadila Sector in Chhattisgarh and Donimalai in Bellary-Hospet region in Karnataka. NMDC envisages to have an iron ore production capacity of 100 MT by FY30.

The company was setting up a steel plant in Chhattisgarh, over FY14-23 and spent approximately Rs 200 billion on it. The cash was used from the core iron-ore business, but this was not good for the overall business. The plant commissioning was delayed due to operational reasons. So, in 2020 the company announced its demerger, which is a right strategy as per the analyst of Emkay Global.

The company's core business returns will improve. "The company has mines that have high-grade, low-impurity iron-ore which, when coupled with favorable geological conditions, are placed among the lowest cash-cost mines globally. At current production rate, NMDC's reserves can last for ~40 years, although further drilling would establish more reserves. NMDC can grow its mining and evacuation capacity, from ~48 and 51mtpa now to ~67 and 80mtpa over the next 3 years" as per the brokerage report.

In terms of industry advantage also, NMDC would indirectly benefit from the oligopolistic setup. "Majority of the high-grade, global seaborne iron-ore is supplied by a handful of players, we believe the industry is a snug oligopoly, with inherent pricing power. Iron ore in India (and more so for NMDC) is sold on an export-parity basis. While export parity pricing by itself is not advantageous for NMDC, there is a good correlation with global seaborne iron-ore prices; hence, NMDC too would indirectly benefit from this oligopolistic setup." was stated in the Emkay Global report.

For the quarter ended 30-12-2022, the company has reported a total income of Rs 3,907.86 Crore, up 4.09% % from last quarter total income of Rs 3,754.45 crore and down by 35.16% from last year same quarter Total Income of Rs 6026.64 crore. Company reported a net profit after tax of Rs 889.86 crore in December quarter.

Recently the company declared its first interim dividend of Rs 3.75 per equity share of face value Re 1. Its record date set is 24th February 2023.

Analyst of Emkay Global, valuation

We value NMDC on FY25E EV/EBITDA multiple of 4x, at fair value of Rs180/share, which implies FY25E P/E of 8.5x and FCF yield of 12%.

Disclaimer:

The stocks have been picked from the brokerage report of Emkay Global, Greynium Information Technologies and the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.