HDFC Securities

NMDC (Buy)

CMP: ₹193.65

Target: ₹206

Incorporated in November 1958, NMDC is India’s largest iron ore producer with a capacity of 32 million tonne. The company operates high-grade iron ore mines at Kirandul and Bacheli in Chhattisgarh and Donimalai in Karnataka. In addition to its iron ore operations, NMDC has a diamond mine at Panna (Madhya Pradesh) and owns a 10.5-MW wind power plant in Karnataka. In July 2010, Sponge Iron India, which has a small sponge iron capacity of 60 ktpa, was merged with NMDC. NMDC aims to ramp up its production capacity to 48 mt by FY2015E (current capacity — 32 mt) through increased exploration of its existing mines and development of new mines, that is, Bailadila 11/B, Kumaraswamy and Deposit 10 & 11/A. Being a dominant player in the domestic industry & low cost of production, the company is poised to benefit in the long run. Cash and cash equivalents stood ₹18,900 crore at FY14-end, or 25 per cent of its current market capitalisation. Dividend yield of 4.5 per cent remains attractive. Key issues: 1) Progress on steel plant project; 2) Uninterrupted operations of Essar Steel’s slurry pipeline; 3) Socio-political activities in Chhattisgarh; 4) Operations of pellet plant in Karnataka.

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