PL First Cut – NMDC 2QFY24

PL First Cut – NMDC 2QFY24 – Tushar Chaudhari – Research Analyst, Prabhudas Lilladher Pvt Ltd

NMDC: Weak operating performance led by sharp decline in realization; volume growth remains strong in monsoon quarter

☘️ NMDC’s (NMDC IN, CMP Rs175, MCap Rs513bn, Accumulate) 2QFY24 EBITDA declined 40% QoQ to Rs 11.9bn (up 39% YoY; lower than PLe Rs 13.3bn) on higher than expected decline in realization. Revenue declined 26% QoQ to Rs 40.1bn (up 21% YoY; PLe 46bn) on weak realization amidst seasonally weak quarter.

☘️ Sales volumes declined 13% QoQ to 9.68mt (up 15% YoY) while average realization declined sharp 14% QoQ to Rs 4,147/t (up 5% YoY; PLe Rs 4,790/t incl. royalty). The average realization is weaker than expected as pricing cuts were front loaded during monsoon quarter.

☘️ EBITDA per ton declined 31% QoQ to Rs1,230/t (Vs PLe Rs1,377; up 21% YoY) as operating and employee costs per ton was higher QoQ. Royalty & cess per ton was lower 25% QoQ as production was lower during 2Q.

☘️ PAT declined 38% QoQ to Rs 10.3bn (up 15% YoY; tad better than PLe Rs 989bn) on account of higher other income.

☘️ View: Global iron ore prices have improved over last few months from USD120/t to USD143/t on optimism of gradual improvement in China, reducing Chinese iron ore inventory and more effectively lower supplies from Australia & Brazil than earlier expected. NMDC continues to drive strong volume growth as demand remains strong in domestic markets. If NMDC ramps up its production from Kumaraswamy mines, exports open up as an incremental avenue for growth. However only if iron ore prices remain elevated; as 30% export duty would not benefit NMDC below USD140/t. Stock trades at EV of 6.2x/5x FY25/26E EBITDA. Maintain Accumulate.