A key overhang is government’s proposal to levy an additional premium on NMDC’s renewed mining leases. If a premium of 22.5% of revenue is levied on all mines of NMDC, it poses a downside risk to FY22 Ebitda
MUMBAI: A strong demand for steel in the country and robust realisations boosted NMDC’s December quarter performance. Firm international prices also lent support as did limited iron ore supplies in the country.
At 92.84 million tonne, the company's sales volumes rose 10% year-on-year in the three months to December. But it was the 35.5% surge in average realisations for iron ore at Rs4,644 per tonne which helped the company post its highest ever turnover. NMDC’s revenue rose 45% year-on-year to Rs4,355 crore.
Strong realisations also boosted the state-owned miner's operating performance. Earnings before interest tax depreciation and amortisation (Ebitda) at Rs2,873 crore was up 67% year-on-year, which implied margins of 66%. Ebitda/tonne rose 54% to Rs2,982.
The sustained rise in steel demand and improving realisations mean that NMDC will likely report good numbers in the March quarter as well. Strong demand amid lower supplies bode well for the company’s sales volumes.
“NMDC is a play on strong iron ore prices and volumes. We expect the margin to rise in 4QFY21 as the spot price is 17% higher than its 3QFY21 average," said analysts at Motilal Oswal Financial Services Limited. They expect margin to peak out in 4QFY21, but stay robust.
International iron-ore prices, ex- China, have eased to $155 a tonne from close to $170 a tonne. Nevertheless, at current levels, prices are substantially higher than $120 a tonne seen at the end of October.
Margins will peak out as supplies from Odisha mines pick up pace. NMDC has already adjusted downwards prices of its products in February. However, analysts at J.P.Morgan Asia Pacific Research said it is difficult to see deeper price cuts going ahead.
Meanwhile, the restart of Donimalai mines in Karnataka may boost volumes.
A key overhang, however, remains the government’s proposal to levy an additional premium on NMDC’s renewed mining leases. If a premium of 22.5% of revenue is levied on all mines of NMDC, it poses a downside risk of 30% to FY22 Ebitda, say analysts at MOFL. The developments regarding the same need to be watched for.
NMDC, meanwhile, has been working on setting up a 3 MTPA steel plant. Demerger of steel asset into a separate entity can provide a trigger to the stock, as it removes investor concerns on company’s cash flows being diverted for setting up of the plant and also unlocks value for investors, feel analysts.
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