Strong volume growth and stable pricing With surplus capacity, well positioned to meet domestic demand
* Strong 15% volume growth likely in FY15:
NMDC has been targeting dispatches of ~35m tonnes (v/s our estimate of 34m tonnes) in FY15, subject to continued operations of Essar Steel’s slurry pipeline. The Chhattisgarh complex is likely to dispatch ~5m tonnes through the slurry pipeline and ~20m tonnes by rail and road. The Karnataka complex would deliver 10m-12m tonnes in FY15. The dispatches are on track so far and volumes for 1QFY15 are likely to be marginally above 8.5m tonnes.
* Strong demand for NMDC’s iron ore fines despite oversupply in international market:
Demand for iron ore fines remains strong despite volatility in international prices. The June price hike on lumps had some impact on demand in the latter half of the month because of fall in domestic steel/sponge iron ore prices. Though no decision has been taken yet, there is a case for rollback of the June price hike for lumps.
* Growth momentum to continue:
NMDC has a total production capacity of ~45m tonnes. Investments in doubling railway tracks between Chhattisgarh complex and Jagdalpur, and flood loading would improve the Chhattisgarh complex’s evacuation capacity in steps over 2-3 years. This would help NMDC to deliver at least 10% annual volume growth in the next 2-3 years.
* Some delays in pellet plant and Kumarswamy conveyor:
The 1.2m tonnes pellet plant should start production from 1 October. Mechanization at the Kumarswamy mines is behind schedule and is now expected to be completed by December 2014. This, however, is not materially affecting deliveries due to use of alternative portable crusher and road transport.
* Progress on steel project stepping up:
After Mr Narendra Kothari, ex-CEO of ISP Burnpur, SAIL, joined as CMD, and Mr AP Chaudhary, ex-CMD of RINL got involved as consultant, project work at the 3m tonne Nagarnar Steel Plant has sped up. The plant should start production by January 2017.
* More growth drivers in pipeline:
NMDC expects to enhance its presence in other states through joint ventures with respective state mineral development corporations. In Jharkhand, it has received prospecting licenses for two iron ore blocks.
* Well positioned to serve growing domestic demand:
We expect Indian steel demand and production to accelerate over the next five years. This would drive demand for iron ore. Given its surplus mining capacity, NMDC would be a key beneficiary. Maintain Buy.
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