NMDC: Prioritizing capex to grow volumes

25 May 2023 , 10:18 AM

Recommendation: Buy

Target Price: Rs. 145

The company aims to prioritize capex at Rs. 20 billion in FY24 and Rs. 30 billion from FY25 onwards, to expand Mining and Logistics capacity with FY30 target of 100mt.

Targeting 46-5mt volume for FY24

Following FY23 production of 40.8mt and sales of 38.2mt, NMDC management guided to volumes of 46-50mt for FY24. Key driver would be higher operational efficiency at existing mines and planned commissioning of 3mt Kumaraswamy mine expansion to 10mtpa by mid FY24, based on receipt of approvals. A more normal monsoon (in terms of duration) and better availability of railway rakes would also be critical to meet the guidance. Management remains sanguine on demand from existing customers and from commissioning of Nagarnar Steel plant by June 2023.

Looking to step up capex to boost medium-term volume growth

NMDC spent Rs. 14 billion on capex in FY23 and guided to spend Rs. 20 billion for FY24 towards ongoing projects, including Rs. 12 billion slurry pipeline, Rs. 9 billion beneficiation plant, Rs. 12 billion pellet plant and 2 screening plants. Management highlighted the key priority to be to expanding annual capex to ~Rs. 30 billion from FY25 on identified projects such as Deposit 11c and 14 (Rs. 30 billion); and 2 more slurry pipelines (Rs. 70-80 billion each). These would boost production volume and evacuation through associated logistics. Overall, FY30 volumes target remains at 100mt, including volumes from JVs and international subsidiaries.

Rs 44.4 billion locked cash could get free over FY24-25

As at end FY23, NMDC had balance receivables of Rs. 19 billion from the monitoring committee (for FY12-January 2021), following Rs. 9.5 billion received in FY23 post SC judgement. It also has Rs. 25.4 billion of ICD due from NMDC Steel, which should be received post commissioning of the plant in June 2023 (analysts at IIFL Securities have included these in their estimates). Both of these should get freed up possibly over FY24-25.