NMDC has been targeting dispatches of ~35 mt (vs our estimate of 34 mt) in FY15, subject to continued operations of Essar Steel’s slurry pipeline. The Chhattisgarh complex is likely to dispatch ~5 mt through the slurry pipeline and ~20 mt by rail and road.
The Karnataka complex would deliver 10-12 mt in FY15. The dispatches are on track so far and volumes for Q1FY15 are likely to be marginally above 8.5 mt.
Demand for iron ore fines remains strong despite volatility in international prices. The June price hike on lumps had some impact on demand in the latter half of the month because of fall in domestic steel/sponge iron ore prices. Though no decision has been taken yet, there is a case for rollback.
NMDC has a total production capacity of ~45 mt. Investments in doubling railway tracks between Chhattisgarh complex and Jagdalpur, and flood loading would improve the Chhattisgarh complex’s evacuation capacity in steps over 2-3 years. This would help NMDC deliver at least 10% annual volume growth in the next 2-3 years. The 1.2-mt pellet plant should start production from 1 October. Mechanisation at the Kumarswamy mines is behind schedule and is now expected to be completed by December 2014. This, however, is not materially affecting deliveries.
We expect Indian steel demand and production to accelerate over the next five years. This would drive demand for iron ore. NMDC should be a key beneficiary. Maintain ‘buy’.