Broker's call: NMDC (Buy)

CMP: ₹110

Target: ₹146

NMDC is an India-based company engaged in mining of iron ore. The company’s segments include iron ore, and other minerals & services. It is also engaged in the production and sale of diamond, sponge iron and wind power.

We recently met with the NMDC management. Our discussion progressed on: i) reopening of Donimalai mines in Karnataka; ii) progress of the steel plant capex and status of steel plant commissioning; iii) competitive dynamics of iron ore in Karnataka including implications of the recently introduced National Mineral Policy (2019) and auction of merchant mineral leases due to expire in March 2020.

Since temporary mine closures in Odisha due to the Supreme Court’s common cause judgment leading to ₹700/te price increase in iron ore market prices in January 2018, the company has witnessed a series of adversities that had a telling impact on valuations (as market cap bottomed at capital returned over last six years). Outlook on the margin front has improved, so have valuations; however, we still see significant value in the name. Maintain ‘buy’.

Key negative risks to our call: 1) lower than expected sales volumes; and 2) extensive correction in iron ore prices.