Emkay Global

NMDC (Buy)

Target: ₹160

CMP: ₹115.55

NMDC has raised iron ore prices by ₹1,850/tonne since May. Meanwhile, primary steel producers took a price hike of about ₹15,000/t in the same period. We believe that the consensus will raise earnings as price hikes sustain through Q4.

Auctioned iron ore mines in Odisha continue to lag their production targets. Production from these mines stood at 6.51 mt vs. the target of 28.7 mt (Apr-Oct’20), resulting in a shortfall of at least 22 mt, while merchant miners increased exports to China.

Reopening of Donimalai in January 2021 should aid volumes in FY22, while continued shortage from Odisha will support prices, putting NMDC in a sweet spot. Progress on the demerger of the steel plant will also support the stock price.

We raise iron ore price assumption by 22 per cent/16 per cent for FY21/22, resulting in EBITDA growth of 40 per cent/23 per cent. We raise our TP to ₹160 (from ₹136), comprising ₹132 for core mining business at 5x FY22 EV/EBITDA and ₹28 for steel CWIP. Maintain Buy with OW.

Key risk is a sharp rise in domestic ore production leading to price correction.

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