This PSU stock gets 'sell' rating from Centrum; here's why

Centrum Broking has recently maintained a bearish view and initiated a 'sell' call on the shares of National Mineral Development Corporation (NMDC), emphasising a target price of Rs 168, considering the current stock price's sharp increase and lack of upside potential.

The decision to initiate a sell call on NMDC stock by Centrum comes in light of the company's latest financial report, revealing its highest ever EBITDA of Rs 2,030 crores, marking a substantial 77.5 per cent year-on-year increase. This surge in EBITDA is largely attributed to two key factors: a notable uptick in sales volume, which rose by 18.9 per cent year-on-year, and a significant 22 per cent year-on-year increase in realisation. However, amidst these positive developments, there exists a lingering concern regarding the delay in receiving environmental clearance for the Kumarswamy expansion project. While it is expected to be obtained by the end of February, the postponement raises apprehensions about potential disruptions to the company's growth trajectory.

However,, NMDC is poised to achieve record sales volumes in the fourth quarter of FY24, buoyed by stable prices in the market, which are anticipated to contribute to higher profitability. Moreover, the imminent approval for the Kumarswamy mine's 2mtpa expansion holds promise to potentially surpass FY24 volume estimates, further bolstering NMDC's growth prospects. Additionally, NMDC's strategic decision to expand the scope of its pellet plant by the end of FY25 from 2mtpa to 6mtpa is expected to drive margin expansion in the future, enhancing its revenue-generating potential, and positions it favourably to capitalise on growing market demand for pellets.

In terms of operational progress, NMDC's ongoing capex projects, including the screening plant at the Bacheli mine and the Kumarswamy mine expansion, are advancing steadily. These initiatives are expected to play a pivotal role in driving volume growth and strengthening the company's competitive position in the market. Looking ahead, NMDC remains focused on its long-term growth objectives, with plans to double its capacity from 51.8 million tonnes to 100 million tonnes by FY30-31. 

Despite these positive aspects, the stock is currently trading at 8x/7.3x FY25/FY26 EV/EBITDA, significantly higher than the five-year average of 4.1x. As a result, Centrum has downgraded its rating to 'SELL'. With the stock trading at a premium, Centrum believes there is limited upside potential from the current market price, warranting a cautious stance on investment in NMDC shares.

NMDC has reported a jump of 62 per cent in net consolidated profit of Rs 1469.73 crore (YoY) from Rs 903.89 for the quarter ending December 2023 on February 14. The revenue from operations of the company surged 45 per cent to Rs 5409.90 crore in Q3FY24. The operating revenue was Rs 3719.99 crore in the same quarter last year.

As of 3:32 pm in Wednesday’s trading session, NMDC shares were trading at Rs 232.80 apiece, 3.38 per cent down from previous day’s price on the BSE.