NMDC is the largest iron ore producer in the country. Last year, it has
produced 32m tonne of iron ore.
NMDC has a net worth of 28,000 cr and it is a debt-free company. It has
paid dividend of Rs 6 per share, which gives a dividend yield of 5%, which
is more than a FD rate of interest.
NMDC is setting up 3.5m tonne steel plant.
The GOI in its cabinet decision dated 14th Oct, 2020 has decided to hive
off steel division to a separate new entity, and give 1 share free to the
existing shareholders of NMDC. The value of the steel plant is around
23000 Cr which translated to Rs 85 per share of steel company, thus
reducing the cost of NMDC's share of iron ore division to Rs 30 per share.
Thus, the NMDC Shareholders shall get 1 free share of the steel division,
which is approximately valued at Rs 85 per share.
In the recent 9months, NMDC has produced 22m tonne of iron ore and sale of
22.34m tonnes iron ore. This is inspite of the disruption in the iron ore
production in Karnataka mines and covid period. Now the Karnataka
Government, has agreed to extend the lease in Karnataka of NMDC mines.
Recently, NMDC has undertaken buyback of shares to the extent of value
1,378 cr @ 105 per share. This shall translate into reduction in the equity
of the company, as a result, EPS of the company will increase in future.
In the recent auction of Iron Ore, on 31st Dec the E-auction price of iron
ore-was Rs 9,750 per metric tonne, which is highest in the history of NMDC.
Rise in huge demand and price will benefit NMDC, as to take advantage of
the same the company is already expected to have increased production and
sales by 25% in the month of December compared on YOY basis. In addition to
this higher production and sales and more iron ore being available for e
auction one can further expect higher profit in Q4 and FY 21-22
Due to the increase in realisation and hiving of steel division, the
ROCE shall increase considerably. With the increase in Iron Ore prices in
international market, and assuming sale of 32 metric tonnes of Iron ore,
the EBITA of NMDC should double in Q4 and FY 21-22.
In January expect NMDC to grow by 35% having added donimali production with
50% higher price compared to YOY basis
The company NMDC which is debt free, is trading only at 3-4 PE multiple on
21-22 estimated earning. Assuming PE multiple of 10 which is the market PE
of iron ore debt free company, this stock should touch atleast Rs 250 in
the near future. Besides, 1 free share of steel company for every 1
existing NMDC shareholder which is likely to fetch rs 85 per share.
For short term traders keeping Q3 and Q4 profits are expected to be doubled
and therefore we recommend a buy for 3 months with a target of 190
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