Nuvama Research has doubled its dividend estimate for National Mineral Development Corporation (NMDC) to Rs 15 per share for FY2024 citing the company’s strong free cash flow generation and robust balance sheet.
In its latest research report, Nuvama estimates NMDC to generate free cash flow of INR 85 billion in FY2024 and INR 50 billion in FY2025. The National Mineral Development Corporation is also expected to have a net cash position of INR 90 billion and INR 120 billion in FY2024 and FY2025 respectively.
Nuvama maintains a ‘BUY’ rating on the stock citing the favourable industry scenario. The mining major is likely to be a key beneficiary of rising ore demand and prices given its market leading position, it noted.
National Mineral Development Corporation (NMDC) is India’s largest iron ore mining company and a central public sector enterprise under the Ministry of Steel. NMDC is engaged in the exploration, development and production of iron ore. It caters to about 50-60% of the domestic iron ore requirement. The mining major sells about 30-35 million tonnes of iron ore annually to domestic steel companies including Tata Steel, JSW Steel, Jindal Steel and Power, Essar Steel and Rashtriya Ispat Nigam Limited (RINL).
Headquartered in Hyderabad, NMDC operates key iron ore mines across the country including Bailadila mine in Chhattisgarh and Donimalai mine in Karnataka. Bailadila iron ore mine complex in Chhattisgarh has an installed capacity of 35 million tonnes per annum (mtpa) while Donimalai has a capacity of 7 mtpa. As per Indian Bureau of Mines data, NMDC accounted for 22% of India’s total iron ore production of 221 million tonnes in FY2022. The company operates close to 50% of the country’s merchant iron ore mines.
Dividend Upgrade
Earlier, Nuvama had pegged a DPS estimate of INR 7 for both FY2024 and FY2025. However, the brokerage has now revised its estimate significantly higher to INR 15 for FY2024 as 2024 is a pre-election year. Moreover, with NMDC’s steel plant hived off, the company’s focus would solely be on its relatively high return on equity mining business.
The mining major is slated to see strong volume growth at a CAGR of 10% over FY2023-26 according to Nuvama’s estimates. NMDC already saw a 27% YoY volume growth to 20.7 million tonnes (mt) in H1FY2024 aided by higher demand and a low base.
Nuvama expects NMDC to receive the final nod for expanding production capacity by 3 mtpa to 10 mtpa at its Kumaraswamy iron ore mine in Karnataka by Q3FY2024. The additional capacity is likely to bolster volumes starting Q4FY2024.
On the pricing front, contrary to expectations of a fall, domestic iron ore prices increased for the second straight month in October. Strong domestic demand and higher steel prices led NMDC to hike iron ore rates.
As a result, Nuvama raised its iron ore price forecast by 14% to INR 4,612/t for FY2024 and 7% to INR 4,212/t for FY2025. Firm global prices and steady demand from China has kept global iron ore prices within the range of USD 105-125/t.
Higher volumes and prices are slated to drive a 23% and 20% increase in NMDC’s FY2024 and FY2025 EBITDA as per Nuvama’s estimates. Consequently, the brokerage has also raised its fair value for NMDC by 29% to INR 188 from INR 143 earlier.
Shares of the company are up 2% in morning trade at 163 rupees.