Despite the positives, volume and pricing challenges continue for NMDC

NMDC’s FY19 and March quarter volume numbers, though impacted by mining disruption in Karnataka, came better than expected. Analysts at Edelweiss said that NMDC’s FY19 sales volume at 32.4 million tonnes (down 10 per cent year-on-year) surpassed their estimates and attributed this to stable volumes in Chhattisgarh compared to last year despite Karnataka disruptions.

The company also benefitted during the March quarter from some improvement in domestic iron-ore prices after international iron-ore-prices gained momentum post Brazilian mining disruptions. Better than expected volumes and some realisations improvement is likely to help the company report decent March quarter performance despite challenges. The margin could also improve as Chhattisgarh production typically fetches better margins compared to Karnataka. Analysts at Emkay Global peg NMDC's net profits to grow 14.8 per cent year-on-year during the March quarter.

Despite the positives, challenges continue to persist. While domestic prices have improved they are lower than international prices. NMDC’s notified iron ore price has risen merely 8 per cent though international iron ore prices had shot up 16 per cent till the start of April, point out analysts. The company had taken price hikes of about Rs 400 a tonne for its output in February ’19. However, earlier in the month it had to tweak its prices lower by Rs 150 a tonne despite firm international iron-ore prices with higher supplies in the domestic market due to rising Odisha production.

Analysts say pricing challenges from Odisha-based miners are likely to continue and volume challenges persist due to ongoing production halt at Donimalai. This is despite ramp-up expected in existing mines at Chattisgarh and new deposits in joint venture with CMDC. Hence despite being the largest iron-ore producer in the country and also trading at attractive valuations, analysts remain cautious on the counter. The strong dividend yield though may cushion downside for the stock from here say, analysts. 

The key trigger for the stock is the resolution of the Donimalai mining issue favourably which will drive volume growth even as domestic steel demand remains healthy.

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