NMDC stock needs iron ore prices and volume to be hotter

“Essentially, the value of this component is pegged at about ₹1,400 crore from CY19, which KMERC is required to return to NMDC within the next two months,” said analysts from Nuvama Research. With this, the broking firm has raised FY24 other income by ₹1,400 crore, leading to a 30% FY24 earnings per share increase.

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This ruling not just recompenses the earlier contribution but also enables NMDC to pay at par with category ‘A’ miners henceforth. This would aid iron ore realization for NMDC in Karnataka.

Separately, NMDC Steel Ltd was listed on the bourses on 20 February. NMDC had demerged its steel business last year. This removes the overhang relating to capital expenditure on the steel plant, which was a drag on return ratios. Moreover, this would enable NMDC to focus on expansion of its core iron ore business.

While these developments are sentimentally positive for NMDC, the key catalysts for the stock include growth in the company’s iron ore volumes and prices, which were sore points in the December quarter. Lower iron ore prices meant realizations were down year-on-year.

The March quarter has better levers. After removal of export duty on iron ore in November, NMDC has raised prices three times so far.

As of now, the latest prices of lump ore and fines stand at ₹4,400 per tonne and ₹3,910 per tonne, respectively. Further, the ongoing quarter is a seasonally strong one thus there’s a tailwind for volumes.

Also, “The 10-year contract to be executed between NMDC and NMDC Steel for supply of iron ore at arm’s length price has the potential to secure a long-term customer, and therefore, boost former’s volumes,” said Satyadeep Jain, an analyst at Ambit Capital.

However, the movement in international ore prices holds the key.

The gradual reopening of the Chinese economy augurs well as the country is an important market for metals. Given this, it remains to be seen if NMDC hikes prices further.

Any such event would be a trigger for the NMDC stock, which is down by almost 9% in CY23 so far.