Research and brokerage firm HDFC Securities is bullish on the shares of the PSU NMDC, a Navratna public sector enterprise and says that strong financials led by consistent growth, strong credit profile, and low cost of operations bode well for the scrip. In its latest report, the firm observes that NMDC has plans to increase Iron ore production to drive better utilization. Further, HDFC Securities says that higher iron ore prices could derive better realisation. “Ongoing integrated steel plant at Nagarnar, Chhattisgarh could help to add profitability going forward,” HDFC Securities noted.
The firm has set a target price of Rs 163. “We feel investors could buy the stock at the CMP and add on dips to Rs 119-123 band (~4.5x FY20E EV/EBITDA) for sequential targets of Rs 151 (5.75x FY20E EV/EBITDA) and Rs 163 (6.25x FY20E EV/EBITDA) over 4-6 quarters. At the CMP of Rs 132.70 the stock trades at 5.0x FY20E EV/EBITDA,” the firm said. NMDC shares closed at Rs 133 on NSE this afternoon. HDFC Securities’ target price implies an upside of more than 18% from the current market prices.
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In the report, HDFC Securities observed that NMDC proposes to augment its production capacity of iron ore to 67mn tpa by FY22 from 34.05 mn tpa (FY17). Further, NMDC has also embarked on value addition projects by setting up pelletisation plant at Donimalai by utilizing slimes and a 3mn tpa integrated steel plant in Chhattisgarh. NMDC proposes to act as a facilitator and developer of green field steel plants by creating Special Purpose Vehicles (SPVs) in the mineral rich states of Jharkhand, Karnataka and Chhattisgarh.
“NMDC is committed to focus on maintaining cost competitiveness in global and domestic market in a scenario where prices are expected to remain subdued over the medium term though they are high currently. NMDC continues to enhance organizational capabilities and other enablers to achieve its short-term and long-term objectives,” the firm noted.