13 Apr , 2022 By : Kanchan Joshi
After posting the highest ever annual production of iron ore (at 42mt) in FY22, NMDC has raised the bar and is now aiming at 46mt for FY23E and even higher for FY24E. The growth will be driven by both Chhattisgarh and Karnataka sectors, as per domestic brokerage house Motilal Oswal.
The brokerage has a Buy rating on the metal stock with a target price of Rs220 per share (from Rs200), implying a potential upside of more than 30% from current level. NMDC shares have surged about 25% in 2022 (YTD) so far.
"We raise our SoTP-based TP valuing NMDC’s mining business at 5x FY23E EV/EBITDA and steel plant CWIP at 75% of the total capex (from 50 percent earlier)," the note stated. Though, key risk to the brokerage's call is slowdown in China, which could lead to lower steel and iron ore prices.
Further, Motilal Oswal believes the demerger of the NISP, which is likely to be completed by 3QFY23E, will be the key trigger for the stock. Thereafter, the government is anticipated to call for bids from potential suitors, which should likely lead to a sale of the government’s holding in the steel plant to the new owner.
“With more iron ore mines being put on auction and steel companies achieving self-sufficiency, the long-term approach of the government to tax iron ore exports (to discourage the same) may warrant a second thought. This can trigger a re-rating of NMDC as it plans to increase its capacity to 70 mt in the near term," the brokerage added.
As per Motilal Oswal, as long as international thermal coal price remains strong, the pricing for the domestic sponge iron, secondary rebar and pellet will remain strong and so will domestic iron ore price.
0 Comment