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Emkay Global
NMDC (Buy)
CMP: ₹125.9
Target: ₹145
The government recently approved the expansion of mining plan of NMDC’s Kumaraswamy mines in Karnataka from 7 mtpa to 10 mtpa. Though it needs environment clearance for this, the step reaffirms our view of impending iron ore shortage after March 2020.
The approval is for a period of two years only as the mining lease of Kumaraswamy mines will be up for renewal in 2022. We believe the renewal will not be a problem due to the recent amendment in the Minerals (Mining by Government Company) Amendment Rules 2019.
Steel production and prices have both started moving up from November 2019, paving the way for iron ore price hikes. Private miners in Odisha have already raised prices by ₹200-400/tonne in view of aggressive bookings by steel plants and we expect NMDC to follow suit.
We raise our FY21/22E sales volume/EBITDA/EPS by 6 per cent/8 per cent/8 per cent and 9 per cent/10 per cent/12 per cent. We also increase our target price by 9 per cent from ₹133 to ₹145, implying a 15 per cent upside from the current market price and raise our ‘Overweight’ position in EAP. Maintain Buy.
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