In its research report dated September 29, 2023, Sharekhan has recommended a “buy” rating on NMDC, with a target price of Rs 175.
NMDC, a major player in the iron ore industry, has recently implemented a price hike of Rs. 300 per tonne (equivalent to 6.5% to 7.7%) for iron ore lump and fines in September 2023. This price increase reflects a recovery in the international iron ore market. The company’s operational performance has been robust, with notable year-on-year growth of 23% and 32% in iron ore production and sales volume, respectively, during the first five months of FY24. This performance gives confidence in achieving the volume guidance of 47-49 million tonnes for FY24 and more than 50 million tonnes for FY25. Sharekhan models a strong 12% compound annual growth rate (CAGR) in iron ore sales volume over the period from FY23 to FY26. NMDC’s long-term outlook is encouraging, with aspirations to reach 100 million tonnes of production in the next five years. Sharekhan has introduced its FY26 earnings estimate and expects a 15% compound annual growth rate (CAGR) in profit after tax (PAT) from FY23 to FY26. There is also the potential for an earnings upgrade due to the possibility of faster-than-expected ramp-up in iron ore production.
Sharekhan maintains a “buy” rating on NMDC with a revised price target (PT) of Rs. 175. The valuation metrics, including an estimated FY26 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio of 4.1x and price-to-book value (P/BV) ratio of 1.3x, are considered attractive. Additionally, the stock offers a healthy dividend yield of approximately 5-6%. NMDC’s substantial cash reserves of Rs 11,200 crore, which represent 26% of its current market capitalization, provide further comfort for investors.
Investors considering NMDC as a potential investment may find Sharekhan’s recommendation and target price to be valuable insights as they make their investment decisions.