NMDC

Iron ore down-cylce, structurally high costs derail profitability

15 November 2022

NMDC reported 2Q EBITDA of INR8.5bn, significantly lower than JMfe of INR15.4bn, primarily due to
sharply lower realisations. Revenues declined 30.2% QoQ on account of 35.4% decline in realisations
accentuated by imposition of export duty, partially offset by 8.1% QoQ increase in volumes. China
CFR prices have declined ~22% during the same period on account of weak global demand. The
company reported multi-year low EBITDA/t of INR 1.0k/t on account of lower realisations and
structurally higher costs. Exports stood nil during the quarter as FTA export arrangement stands
expired. Production during 1H stood at 16.0 mn tons as against company guidance of 46-47 mn tons
for FY23. NMDC has concluded the demerger of the steel plant and has recognised the effect of
demerger in its financial statements. We downward revise our FY23 earnings in tandem with weak
1H performance and reduce our fair value to give effect to the demerger. Maintain HOLD (refer
exhi.4/5).

•  Realisations rise sequentially, aiding margins: Revenues decreased by 30.2% QoQ to

INR33.3bn. Realisation came lower at ~INR3.9k/t, down 35.4% QoQ. Volumes increased
8.1% QoQ to 8.4 mn tons. Overall EBITDA/t stood at INR1.0k, down 58.5% QoQ. EBITDA
decreased by 55.2% QoQ to INR8.5bn. Royalty as % of sales stood at 26.1% in 2Q vs 49.6% in
1Q. Adjusted PAT declined c.39.7% QoQ to INR8.9bn.
•  Nil exports during the quarter as FTA export arrangement stands expired: India’s long term
agreement for export of Iron ore at concessional duty of 10% to Japan and South Korea
expired on 31st March 2021 and has not been renewed by government. Export of Iron ore to
both countries now fetches 30% duty resulting into no export.
•  Steel plant demerger concludes: NMDC’s plan to demerge 3 mtpa steel plant has been
duly sanctioned by the Ministry of Corporate Affairs ("MCA") vide its order dated 6th
October 2022. Post receipt of order, NMDC filed the same with the concerned Registrar of
Companies on 13th October 2022. Hence , the scheme is operative from 13th October 2022
(i.e from the Effective date). Further the company has also recognised the effect of
demerger.
•  Structurally high costs to impact profitability; Maintain HOLD: Application of MMDR
additional premium on all mines will result in higher statutory levies going forward. This is
expected to impact profitability going forward. Maintain HOLD.