Companies

NMDC braces up for new challenges, low demand now

V Rishi Kumar Hyderabad | Updated on June 22, 2020 Published on June 22, 2020

NMDC had to take a production and sales hit of 10 lakh tonnes and 5.5 lakh tonne, respectively, in March 2020 due to the lockdown

After a tough fourth quarter of last fiscal, wherein NMDC had to take a ₹795-crore Vivad Se Vishwas settlement payout, the iron ore mining major is facing new challenges, including in Chhattisgarh and with regard to Donimalai mines in Karnataka.

The first quarter of the current financial year, due to Covid-induced lockdown, and the full fiscal are likely to be a tough one ahead for NMDC. The company faces hurdles in its mines in Chhattisgarh, wherein it has a licence related issue for its loading plants at Bailadila mines in Dhantewada and delays in securing clearances for its mining lease renewal for Donimalai mines in Karnataka.

The mining company, which had a reasonably good financial year of 2019-20 closing with a turnover of ₹11,699 crore as against ₹12,153 crore, had seen its profits clipped by a pending payout of ₹795 crore, which brought down the annual profit to ₹3,610 crore, down 22 per cent from ₹4,642 crore in the previous fiscal.

The last quarter profit was hit due to the payout, resulting in a profit of ₹351 crore, down 76 per cent over the previous financial year. While the last quarter was affected by Covid-19 lockdown, it logged a production of 31.49 million tonnes as against 31.51 mt in FY2020.

The company had to take a production and sales hit of 10 lakh tonnes and 5.5 lakh tonnes, respectively, in March 2020 due to the lockdown.

On the company performance during FY 2020, N Baijendra Kumar, Chairman and Managing Director, said, “the company had to face a tough quarter with disruptions and disturbances. The stable performance was registered despite the challenges faced by the company during the year.”

In addition, the company seems to have become a victim of political crossfire between the NDA Government at the Centre and the Congress-ruled State of Chhattisgarh. The State government has alleged non-payment of storage fee, which is being disputed by NMDC. The State had also raised a tax demand under the common cause judgment. Part of the demand was paid by NMDC, rest disputed, according to a report by Emkay Global.

Outlook

Motilal Oswal in its analysis has said NMDC had lower than expected realisation. It also hinted at the possibility of price cuts of iron ore to support volume growth in the near term.

During the fourth quarter, the company had made an upfront payment of ₹230 crore toward the allocation of the Tokisud and Rohne coal blocks.

Sharing its outlook, it said NMDC is likely to increase prices once the demand normalises in second half of FY 2021. However, the iron ore prices are likely to remain subdued.

However, higher global iron ore prices are likely to step up exports, thereby keeping domestic iron ore supply in check. While the large steel players have received orders for captive mines, NMDC would have to rely on smaller steel players to maintain its volumes.

NMDC closed at 87.75, up 6.49 per cent on the BSE.

Published on June 22, 2020
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