Brokerage has upgraded NMDC to ‘Buy' from ‘Hold', citing expectations of a recovery in domestic iron ore prices and stronger sales volumes in the second half of fiscal 2027. The brokerage has, however, lowered its target price to Rs 97 from Rs 100, valuing the stock at 9x FY28E earnings.
At the current market price, NMDC trades at an attractive price-to-earnings multiple of 7.6x based on FY28E EPS, according to the brokerage. NMDC reported Ebitda of Rs 2,470 crore, broadly flat year-on-year but marginally below the brokerage's estimate of Rs 2,620 crore in quarter ended June. Ebitda per tonne declined by Rs 46 year-on-year to Rs 2,106.
The performance was supported by a 2% year-on-year increase in sales volumes and a Rs 416 per tonne improvement in blended realisation. However, the benefit was largely offset by higher royalty and premium costs, which increased by Rs 652 per tonne.
Iron ore revenue rose around 6% year-on-year to Rs 6,510 crore, helped by sales volumes of 11.7 million tonnes, up 2% year-on-year, and a blended realisation of Rs 5,799 per tonne. Production was significantly stronger, rising 26% year-on-year to 15.1 million tonnes. However, sales lagged production due to monsoon-related logistics challenges and weaker demand as major steel plants undertook maintenance shutdowns.
Royalty and premium costs surged 30% year-on-year to Rs 3,500 crore as these expenses are calculated on production volumes. The sharp increase offset the improvement in iron ore realisations, keeping Ebitda broadly unchanged from the year-ago period.
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The brokerage expects sales volumes to accelerate in second hald of this fiscal as demand improves, providing a key earnings growth driver for NMDC.
Receivables continue to remain an area of concern. Total outstanding dues from RINL and NMDC Steel stood at around Rs 11,160 crore, although this was down approximately Rs 117 crore sequentially. NMDC Steel's outstanding dues declined by Rs 240 crore QoQ to Rs 6,450 crore, while RINL's dues increased by Rs 126 crore QoQ to Rs 4,710 crore. The brokerage believes a turnaround in NMDC Steel's profitability could help improve payments and reduce the receivables burden over time.
The brokerage expects domestic iron ore prices to have bottomed out, with an improvement in long-product prices providing support to the broader steel and iron ore market. NMDC's iron ore prices are currently around 32% below the landed cost of imports, suggesting limited downside to domestic prices, according to the brokerage. With demand expected to improve and sales volumes likely to pick up from H2 FY27, the brokerage expects firmer prices and higher volumes to support NMDC's earnings trajectory.
Another potential positive is the MMDR Amendment Act, 2026, which has been passed by both Houses of Parliament and is awaiting the President's approval. According to the brokerage, the proposed legislation would restrict state governments' ability to levy certain taxes and eliminate retrospective tax liabilities for companies. This could remove the risk of a retrospective tax liability that NMDC currently reports as a contingent liability of Rs 15,800 crore. The move is also expected to provide greater consistency and clarity for future investments in the mining sector.
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