NMDC shares jump over 13% on demerger of Nagarnar iron and steel unit

The move can unlock significant value for the minority investors as hardly any value gets attributed to Rs 16,000 crore of WIP in NMDC’s balance sheet on account of the steel plant, analysts said.

According to ICICI Securities, if pursued in a time-bound manner, this can lead to separate avenues of fundraising for the government, allowing FCF yield and correspondingly the dividend yield of NMDC to increase substantially.

“All incremental capex for the steel plant can be self-funded by the demerged entity and improve return ratios of the mining entity substantially; allow investors a better pureplay mining opportunity,” ICICI Securities said in a note.

Meanwhile, NMDC reported a 54.8 percent fall in Q1FY21 net profit to Rs 532.9 crore from Rs 1,179.3 crore while revenue declined 40.6 percent to Rs 1,937.50 crore from Rs 3,263.7 crore, YoY.

NMDC’s production of iron ore in Q1FY21 was at 66.05 lakh tonnes and sales were at 62.75 lakh tonnes.

The company said that there had been a loss of around 18.23 lakh tonnes of production and 23.94 lakh tonnes of sales due to nationwide lockdown. This has resulted in an estimated loss in sales revenue of Rs 737 crore and PBT of Rs 317 crore, it added.

ICICI Securities said that substantial price hikes will improve EBITDA profile of NMDC in the coming quarters. NMDC has announced price hikes of around Rs 700/te post Q1FY21.

ICICI Securities has maintained 'Buy' with a target price of Rs 130 per share.

“We are yet to witness any closure in demand from Chattisgarh state or restart of Donimalai mines. With approaching commissioning of the steel plant and the in-principle approval of demerger, as well as series of price hikes underway, NMDC makes a compelling investment case,” the brokerage said.