NMDC set for growth driven by volume expansion, capacity enhancement: Report

NMDC, the state-run largest producer of iron ore, is set for strong growth driven by volume expansion and capacity enhancement initiatives, according to a report by brokerage firm Motilal Oswal.

The report highlights NMDC's robust performance, with the company on track to surpass 50 million tonnes (mt) of production by fiscal year 2025. With domestic demand for iron ore expected to align with infrastructure and construction growth, NMDC is expected to produce approximately 45 mt of iron ore in 2024. Moreover, NMDC's production for the 11 months of fiscal year 2024 has already surpassed 40.2 mt, marking the third consecutive year of production exceeding 40 mt. The company is well-positioned to exceed 50 mt of production in fiscal year 2025 and 55 mt in fiscal year 2026, the brokerage firm noted.

NMDC has undertaken capex for various evacuation and capacity enhancement projects, aimed at improving the product mix and increasing production capacity to around 100mt by fiscal year 2029-30. The report underlines that the domestic steel sector is favourably positioned compared to global peers, with domestic crude steel capacity expected to reach approximately 175 mt in fiscal year 2024, translating to a substantial iron ore requirement. NMDC commands a significant market share, approximately 16 per cent, in this context.

As crude steel capacity is projected to increase to 300 mt by fiscal year 2030-31, the total demand for iron ore is estimated to reach approximately 435-445 mt. NMDC, with its dominant presence in the domestic market, is well-equipped to capitalise on these growth opportunities.

Despite recent corrections in international prices leading to price reductions by NMDC, the company aims to mitigate the impact on near-term growth by focusing on continuously improving volumes.

Currently trading at 4.5 times fiscal year 2026 estimated enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and 1.7 times fiscal year 2026 estimated price-to-book (P/B) ratio, Motilal Oswal reiterates a buy rating on NMDC stock for target price of Rs 260.

However, the report also cautions against potential risks, including increased competition due to the operationalisation of additional iron ore mines and NMDC's reliance on a few customers, which exposes the company to business risks.