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Business News/ Markets / Stock Markets/  NMDC shares surged 140% in 10 months; should you invest in the metal stock now?

NMDC shares surged 140% in 10 months; should you invest in the metal stock now?

LKP Securities initiates 'buy' rating on NMDC with target price of ₹297/share, expecting 20% increase. The company, largest iron ore producer in India, plans aggressive mine capacity expansion to meet growing steel demand.

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In its recent report, domestic brokerage firm LKP Securities initiated coverage on NMDC with a 'buy' rating, establishing a target price of 297 per share. Despite the company's shares already surging by 140% in just 10 months, this new target price suggests another 20% increase from the stock's previous closing price of 248 per share.

Additionally, reaching this target would mark a 14-year high for the stock, with the last similar milestone achieved back in April 2010.

The company is the country's largest producer of iron ore. Operating under the Ministry of Steel, NMDC is a ‘Navratna’ public sector enterprise and owns and operates highly mechanised iron ore mines in Chhattisgarh and Karnataka.

Other than iron ore, NMDC also produces diamonds from its Majhgawan mine at Panna, Madhya Pradesh. It currently produces around 45 MT of iron ore per annum and has a capacity of producing 51 MT.

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The brokerage outlined several key factors in its report for its bullish outlook on NMDC. Firstly, it pointed out that the company is well-positioned to benefit from the growing demand for steel in India.

Secondly, it anticipates the company to capitalise on a potential resurgence in capital expenditure, resembling the period of 2003–2007. Thirdly, it says, the company is undertaking aggressive mine capacity expansion to meet future demand. 

Lastly, it highlighted the company's abundant access to high-quality ores for the next four decades.

Over the period FY24E–26E, the brokerage expects the company to achieve revenue, EBITDA, and PAT CAGR of 12.9%, 18.8%, and 19.1%, respectively.

Also Read: China's GDP growth beats forecasts in Q1, but concerns linger over base metals' outlook

An attractive play on upcoming steel demand in India

The Indian steel sector is on track to double by 2030, with numerous firms pursuing capacity expansion initiatives and ambitious production goals. Major players like Tata Steel and SAIL boast backward integration in iron ore. 

Also Read: For metal companies, Q4 likely was a season of some hits, some misses

However, NMDC assumes significance as non-integrated companies aim to tap into the anticipated surge in demand across India in the near future. As India's per capita steel consumption is projected to double, there will be a corresponding increase in the demand for iron ore to meet the steel production targets.

A repeat of 2003-07 capex boom is likely

As per the brokerage's analysis, during 2003–08, sectors like capital goods and metals yielded higher returns compared to traditionally popular sectors such as banking and IT in India’s sectoral indices. This trend was linked to India’s infrastructural growth phase at that time. 

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The brokerage foresees a similar trend emerging between 2023 and 2028, as initial indications of such a pattern are already observable in 2024, with the aforementioned sectors demonstrating robust performance.

Major capacity additions on the cards

NMDC is presently engaged in several capital expenditure (capex) initiatives focused on enhancing its dispatch and sales capabilities. These projects are expected to bolster ore production, refine the product mix, and expand mining capacities. 

Also Read: Govt capex sparks India’s economy despite inflation, geopolitical crises: ICRA

According to the brokerage, the company had set ambitious plans to increase its production capacity from the current 51.8 MT to 67 MT by securing Environment Clearance (EC) approvals by FY26. Additionally, it aims to achieve a production capacity of 100 MT by FY30 to address the growing demand for iron ore in the Indian steel industry.


Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.


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Published: 25 Apr 2024, 01:07 PM IST
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