|Type of Report||First Recommendation|
|Report Date||July 13, 2017|
|Price on Report Date||Rs. 119|
|Current Market Cap||Rs. 37650 crores|
|Indicative Target Price*||Rs. 175|
Introduction: NMDC Ltd is the largest iron ore mining company in India and has produced 34 million tonnes of iron ore for FY17. This production is achieved with the help of its 4 fully mechanised mines -2 mines in Chhattisgarh and 2 mines in Karnataka. NMDC is government promoted company recognized as a Navratna PSU where 75% of stake in company is held by government.
1. Volume Growth To Drive Profitability: NMDC is largest iron ore mining company in India having a very consistent track record in mining operations. However, NMDC has little influence in determining Iron Ore price as it is affected by the global demand and supply dynamics.
Considering the Indian demand of Iron Ore and in order to maintain its focus on profitability despite price volatility, NMDC has slowly expanded its Iron Ore production capacities. In FY17, the company has registered its highest ever production and sales of 34 million tonnes and 35.6 million tonnes respectively. NMDC has also maintained its sales growth in first two months of FY18 as well and is expected to increase the overall production over the next few years. NMDC is further set to increase iron ore production from its Karnataka mines if the Supreme Court increases or lift the mining cap on iron ore production.
From its current 34 million tons of Iron Ore production, the company has set an internal target to produce 50 million tonnes of iron ore by FY19 with further increasing it to 67 MTPA by FY22. To achieve this target, NMDC can explore its existing untapped iron ore reserves of 2299 million tonnes. At current rate of 34 million tons of production, these reserves of 2299 million tons can last for another 68 years.
4. Uptick in Price can Significantly Improve Profitability: Currently, International prices are hovering around $60 per ton from its high of $150 per ton in January 2013. It seems that Iron ore price has bottomed out and will not fall below $50 per ton as it has bounced back from $50 level in the past. Even in India, Domestic iron ore price has bounced from Rs. 1700 per ton in July2016 to Rs. 2225 per ton in July2017.
In addition to that, closure of any mines in the world or higher demand of iron ore by China will strengthen the iron ore price. Any uptick in iron ore price will further improve the profitability of company.
2. Weak demand of iron ore by their customers such as JSW, Rashtriya Ispat and other major steel producers who do not have their captive iron ore mines.
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