Shares of NMDC fell 4 per cent in Tuesday's trade after state-run firm reported a 62 per cent year-on-year (YoY) drop in September quarter profit, leading to earnings downgrades by brokerages.
India's largest producer of iron ore reported a 62 per cent fall in its consolidated net profit at Rs 885.65 crore in Q2, mainly on account of lower income. It had clocked Rs 2,339.58 crore net profit in the year-ago quarter.
The company's total income fell to Rs 3,754.77 crore from Rs 6,882.44 crore YoY. Ebitda margin came in at 26 per cent.
Motilal Oswal said it has cut FY23 and FY24 Ebitda estimates for NMDC by 6 per cent and 1 per cent, respectively. The brokerage has cut its PAT estimates for FY23 and FY24 by 2 per cent each.
"We note that a possible demand recovery in China can lead to improved demand in steel and consequently steel prices in India. We believe iron ore prices will remain under pressure and will not pick up as long as export duty on iron ore continues. We also expect steel players to ramp up their captive mines that will further reduce the demand for merchant iron ore," it said.
The stock is trading at 4.1 times FY23E EV/Ebitda on core mining business. Motilal said the stock adequately reflects the current downturn in the domestic iron ore market, as it suggested a target of Rs 124 for the stock against Rs 128 earlier.
Kotak Institutional Equities said NMDC’s Ebitda for the quarter was much lower than its estimates, led by lower realisations with an unfavorable product and geographic mix. It expects margins and volume to recover in H2FY23, after a challenging H1FY23 due to changes in export duty.
"We see a strong re-rating potential after the steel plant demerger with improved capital allocation, higher FCF and a likely higher dividend payout. We tweak earnings and revise the FV to Rs 130," it said.
On Tuesday, the NMDC stock fell 4.14 per cent to hit a low of Rs 108.65 on BSE. At this price, Kotak’s target suggests a 20 per cent upside.
Meanwhile, NMDC has demerged the steel plant with shareholders of NMDC getting similar number of shares in NMDC steel plant. The demerger and listing of the shares in NMDC steel plant is no trigger, Motilal Oswal said.
"We believe the existing investors who received shared through demerger will largely be sellers in that company post-listing," Motilal Oswal said.
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