NMDC shares up 20% in 1 month. ICICI Securities recommends 'Buy', sets target at Rs 180

ICICI Securities has upgraded its rating on NMDC Ltd to 'Buy' from 'Add', raising its target price on the stock to Rs 180 from Rs 130 earlier. The domestic brokerage sees consensus estimates for NMDC to see revision soon on the back of strong operating performance of the company.

There are plans underway to increase both production and evacuation capacities for achieving the sales volume of 100 mtpa by FY30, ICICI Securities said while expecting sales volume growth to be the core focus for NMDC now as the steel plant has been demerged. NMDC, ICICI Securities said, has an opportunity to consolidate its position in merchant mining space even in Odisha where mining scenario has changed considerably post the auctions.

On Wednesday, the stock rose 3.44 per cent to Rs 141.15 level on BSE. The stock is up 17 per cent in the last one month.

NMDC’s operating performance has been robust year-to-date, with 23.1 per cent YoY growth in production and 29.7 per cent YoY growth sales volume. The management’s guidance of 47-49 mnte and 50-54 mnte for FY24/FY25 looks achievable, ICICI Securities said, as supply to Chhattisgarh-based units has picked up; supply to NMDC steel plant (5-6mtpa) has commenced and supply from Karnataka has gone up 41.4 per cent YoY as of YTD August mainly due to the traction from JSW Steel.

ICICI Securities expects NMDC's sales volume in FY24E may breach the 32-40 mnte range. It said long-term volume visibility is clearer as the roadmap for 100 mtpa by FY30, though aspirational, is being worked on. Commercial mining in Odisha is progressively getting undermined, resulting in more opportunity, it said adding that return on equity for NMDC could improve further from the current level of 22 per cent, as mining business takes the centre stage and steel plant is demerged.

"Taking cognisance of the sales volume until August and favourable price outlook, we raise our FY24E/FY25E EBITDA by 22 per cent/38 per cent, respectively. Furthermore, we raise EV/Ebitda multiple to 5.5 times (earlier 5 times) in view of robust volume trajectory in future. Our revised target price works out to Rs 180 (earlier Rs 130)," it said.

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