'Buy' NMDC share, says Sharekhan, keep stop-loss at Rs 136 and target price at Rs 147
Sharekhan says that NMDC has resumed iron ore price hikes with cumulative increase of Rs 750/Rs 350 per tonne for iron ore lump/fines over March-April 2021 (post a steep cut of Rs. 600/tonne in February 2021). Sharekhan says that NMDC’s current iron ore lump/fines prices of Rs 5850 / Rs 4560 per tonne is 51%/35% higher as compared to average price of Rs 3880 / Rs 3387 in FY2021E
NMDC Share price today is Rs 141, trading flat today. NMDC share price has moved up over 8% to Rs 141 from Rs 130 over the last week itself. Sharekhan says that NMDC has resumed iron ore price hikes with cumulative increase of Rs 750/Rs 350 per tonne for iron ore lump/fines over March-April 2021 (post a steep cut of Rs. 600/tonne in February 2021). Sharekhan says that NMDC’s current iron ore lump/fines prices of Rs 5850 / Rs 4560 per tonne is 51%/35% higher as compared to average price of Rs 3880 / Rs 3387 in FY2021E.
Sharekhan says that it expects strength in domestic iron prices to sustain given supply deficit in India (lower output from Odisha), high demand from the steel sector, and steep discount of domestic price to international iron ore prices (domestic iron ore lump/fines price at 67%/62% discount to Chinese iron ore price).
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Technical Analysis on NMDC:
Chandan Taparia, Derivative & Technical Analyst, Motilal Oswal Financial Services says that Stock came out of its range on a weekly scale and has been forming higher highs - higher lows on a daily frame. Long built up can be seen on the counter. He recommends buying in NMDC with a stop loss of Rs 136 and target of Rs 147.
Moreover, iron ore demand in India is robust, led by strong demand from the steel sector (higher utilisation rate of 90%), and the same is reflected in NMDC’s Q4FY2021 sales volume growth.
Sharekhan says that Robust iron ore sales volume and higher prices reinforce confidence with respect to strong earnings performance by NMDC. Sharekhan expects EBITDA growth of 33% qoq in Q4 FY2021. It said, "We believe that strong volume growth momentum to sustain and expect strong iron ore sales volume growth for NMDC, supported by resumption of Donimalai mine (capacity of 7 mtpa) in Karnataka and capacity expansion at Kumarasamy/Chhattisgarh mines."
Sharekhan says that robust pricing environment and volume growth bode well for steady EBITDA despite assuming higher royalty premium of 22.5% for the entire production of NMDC.
Sharekhan also indicated that there is a possibility of further increase in dividend payout (already increased to Rs 7.8/share for FY2021 versus Rs. 5.3/share for FY2020) as cash position would improve considerably post the likely strategic sale of 3-mtpa Nagarnar Steel Plant.
Due to this, Sharekhan says it has maintained a Buy rating on NMDC with a price target of Rs 165.
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