Volume growth for NMDC to remain robust in H2 with environmental clearances

NMDC’s revenue in Q2FY25 came in at Rs 4,900 crore (a rise of 23 per cent year-on-year or Y-o-Y), while it was down 9 per cent quarter-on-quarter (Q-o-Q).

 

Iron ore production stood at 8.3 million tonnes (down 7 per cent Y-o-Y and 10 per cent Q-o-Q).

 

Sales were at 9.9 million tonnes (up 4 per cent Y-o-Y and  down 1 per cent Q-o-Q).

 

The average selling price stood at Rs 4,954/tonne (up 18 per cent Y-o-Y). The operating profit was Rs 1,400 crore (up 16 per cent Y-o-Y/down 41 per cent Q-o-Q).

 

Increase in operating costs led to operating profit/tonne dropping to Rs 1,395 per tonne (up 12 per cent Y-o-Y, down 40 per cent Q-o-Q).

 

The adjusted net profit was Rs 1,200 crore (up 17 per cent Y-o-Y and  down 39 per cent Q-o-Q).

 

For H1FY25, NMDC revenue was Rs 10,300 crore, (up 10 per cent Y-o-Y), operating profit was Rs 3,700 crore (up 17 per cent Y-o-Y), and adjusted net profit of Rs 3,200 crore (up 18 per cent Y-o-Y).

 

Second half revenue growth will be much higher, with commensurate growth in operating profit.

 

Iron ore production for H1FY25 stood at 17.5 million tonnes and sales volume was 20 million tonnes, with a decline of 11 per cent Y-o-Y and 3 per cent Y-o-Y, respectively. 

 

The average blended realisations for H1FY25 stood at Rs 5,167/tonne, up by 13 per cent Y-o-Y. The operating profit/tonne grew 20 per cent Y-o-Y to Rs 1,863/tonne.

 

Cost as a percentage of sales stood at 70 per cent (70.3 per cent in Q2FY24 and 56.1 per cent in Q1FY25.

 

This dragged down sequential performance. The board declared bonus shares in the ratio of 2:1. 

 

Despite weak volume in H1FY25, revenue growth was healthy. NMDC raised iron ore prices twice in October 2024, with cumulative hikes of Rs 1,000/tonne for lumps and Rs 800/tonne for fines.

 

These hikes support realisations and improve margins. In Q3FY25 to date, average iron ore prices are up 13 per cent compared with Q2FY25.

 

India’s crude steel capacity is expected to reach 300 million tonnes by FY30-31, which will increase the iron ore requirement to 435-445 million tonnes.

 

NMDC holds 16 per cent of market share currently.

 

Planned capex for various evacuation and capacity enhancement projects will improve product mix and increase production capacity to 100 million tonnes by FY30.

 

Volume growth will rebound in H2, since monsoon is over and some pending environmental clearances have come through. 

 

Over 100 iron ore blocks have been auctioned since FY16. When all the captive mines become operational, it would lead to higher supply, intensifying competition. Sub-par demand and falls in iron ore prices are other key risks.

 

NMDC produced less ore in Q2FY25, but sold more, which led to higher fixed costs on closing inventory (Rs 480 crore) and lower operating profit/tonne. Operating profit was also affected by higher operating cost at the recently started legacy mines, which delivered Rs 110 crore revenue.

 

Although NMDC had earlier guided volumes at 50 million tonnes and 54 million tonnes for FY25 and FY26 respectively, it is conservative to assume 46-50 million tonnes range, and also assume lower ore pricing as NMDC would have to take price cuts during H2FY25, if global prices remain muted.

 

NMDC is investing Rs 50,000 crore for augmenting capacities to 100 million tonnes per annum by FY30 along with evacuation infrastructure.

 

NMDC generated Rs 48,300 crore of cash from operations over FY13-24, which it keeps reinvesting.

 

It entered into MoU with RINL for a long-term lease of 1,167 acres for setting up various facilities.

 

The lease involved an upfront premium of Rs 1,500 crore and a security deposit of Rs 90 crore but a nominal rental of Rs 1 per year for 33 years.

 

NMDC has outstanding receivables of Rs 2,300 crore from RINL. Another Rs 2,200 crore is due from NMDC Steel (NSL), post demerger.

 

Steady increase in domestic demand, a strong balance sheet and moderate valuations are all positives.