NMDC-Value or Cyclical?

Summary of Q4FY23 concall:

• Management is targeting 46-50mnte of volume in FY24. The enhancement in production is dependent on i) enhanced efficiency, ii) normal monsoons and iii) capacity enhancement of Kumaraswamy mines from 7mnte to 10mnte. By mid FY24, enhanced capacity is likely to come on board.

• Key projects currently on are: i) Pellet plant of Rs1200 cr, ii) laying of slurry pipeline ~Rs 1100 cr, iii) beneficiation plant of Rs 900 cr, iv) SP3 plant in Kirandaul at Rs 3000 cr, v) capacity enhancement in deposit 14 and 11C at Kirandaul at Rs1100 cr, vi) SP2 at Karnataka of ~Rs 1000 cr (already sanctioned and clearance received).

• NMDC sold 5.5 MTin Mar23 (best ever) and also Apr23 was also the best ever. In May23, production and sales have been much better compared to prior years. Hence, management expects Q1FY24 to be one of the best quarters in terms of volume.

• Domestic demand is sufficient to meet the increased production requirement.

• Steel plant is expected to commission by June-end. All auxiliary equipment has been commissioned. When running at full capacity, the iron ore requirement of the steel plant will be about 5.4 MnTPA (=1.8 * 3 MnTPA ). The NSLNISP steel plant has a long-term agreement with NMDC for supply of iron ore and NMDC would anyway be the most economical way for the new plant to source iron ore.

• Capital work in progress. All the opex related to steel plant is booked in CWIP. Coal purchased for steel plant is also accounted under CWIP. Steel plant capex till date Rs 22930 crore.

• Kumarswamy mine was renewed in Oct’22. Hence, additional 22% royalty on sales
  is applicable.

• Exports. Domestic realisation is always higher than exports.

• During the quarter, NMDC reported exceptional income to the tune of Rs 1237.27 crore. Exceptional income includes a) Rs 957 crore from monitoring committee towards 10% of the amount withheld for the period January 1, 2019 to March 31, 2022, b) Rs 279.67 crore profit on strategic divestment of NINL (net off the gross amount of Rs 380.27 crore received against the amount invested in NINL of Rs 100.60 crore).

• Iron ore sales realisation for the quarter was at Rs 4663/tonne, up 22% QoQ. EBITDA/tonne for the quarter was at Rs 1745/tonne, up 46% QoQ. For Q4FY23, NMDC reported sales volumes 12.4 million tonnes (MT), up 30% QoQ and flattish YoY.

• Receipt of Rs 960 crore from Monitoring Committee. Apart from receiving 960 crore
  already from the Monitoring Committee, NMDC still has roughly half of the amount yet to be received. Furthermore, the cash balance is expected to increase as the amount was received post Mar23 and hence, is not reflected in the balance sheet as of now.