Recommendation From Mining & Minerals Sector
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
NMDC - ALL SET TO MINE GOOD PROFITS
HERE IS WHY
☛High dividend yield
☛Good market position
☛Attractive valuation
NMDC is India’s largest iron ore mining company. With an annual production capacity of 43 million tonnes of iron ore, and production of around 32.4 million tonnes of iron ore in FY2019, it has a market share of 24 per cent domestically.
NMDC is operating three highlymechanised iron ore mine complexes. Two mine complexes are located in Chhattisgarh with yearly production of around 23 MT. One mine complex located in Karnataka produces 12 MT per annum.
Additionally, it also operates a diamond mine in Panna, Madhya Pradesh. This is the only mechanised diamond mine in Asia. NMDC has a sponge iron unit of 200 TPD at Paloncha, Telangana.
In a growing economy, steel requirements also increase. As such, the Government of India has charted a roadmap to augment India’s steel production capacity to 300 MTPA by 2030-31 as per the National Steel Policy. To fulfil this vision, NMDC proposes to act as a facilitator and developer of greenfield steel plants by creating Special Purpose Vehicles (SPVs) in the mineral rich states of Jharkhand and Karnataka. To meet the country’s demand for steel, the company plans to increase production capacity of iron ore to 67 MTPA. NMDC also has a 3.0 MTPA integrated steel plant at Chhattisgarh in the pipeline. This plant is close to completion, with production expected during FY2021. Going forward this will add to the topline.
NMDC owns 78.56 per cent equity in Legacy Iron Ore Limited. It is an ASX-listed entity based in Perth,Australia with a focus on iron ore, gold and base metals. In addition NMDC is in the process of carrying out a detailed exploration and setting up of a pilotscale processing plant for gold with its mining lease in Tanzania. On a consolidated basis, the gross sales have decreased 17.62 per cent to Rs 3,006 crore in Q3FY20 from Rs 3,649 crore in Q3FY19. EBITDA showed a decrease of 26.16 per cent to Rs 1,590 crore in Q3FY20 from Rs 2,153 crore in the same quarter last year. PAT for Q3FY20 stood at Rs 1,375 crore as against Rs 1,575 crore in the same quarter last year, showing a decrease of 12.74 per cent.
The company has a healthy financial position. It has debt of around Rs 364 crore as of March 2019. The company has a cash balance of around Rs 4,619 crore which is sufficient to help cushion any slowdown induced due to lockdown.
With its established market position, the company is poised to perform well in the near future. The iron ore market in India is poised to grow with major steel makers planning to add capacity.
Additionally, the Chinese market, after returning from the impact of corona virus, might deploy a large-scale stimulus to revive the economy, which will boost steel consumption and prices.
This will support higher iron ore prices. The stock has an attractive dividend yield of about 5 per cent and is trading at an attractive PE multiple of 5.23x. By virtue of these factors, we recommend our reader-investors to BUY this stock.
