Lower prices and volumes will hurt NMDC’s near-term outlook

However, the company faces short-term difficulties as the recent price cut reflects a global supply glut. Management has forecast that its average realisation will fall to ₹4,300 per tonne in the September quarter (Q2FY25) from ₹5,300 per tonne in the first quarter of fiscal year 25. EBITDA is earnings before interest, taxes, depreciation and amortization.

Considering the change in market conditions, most brokerages have reduced their earnings estimates for NMDC. “We are cutting the estimated Ebitda for FY25 and FY26 by 9% and 5% to factor in lower prices and volume,” analysts at Nuvama Institutional Equities said in an August 16 report. Similarly, Philip Capital India Research notes, “Given international prices below $100 per tonne, we believe NMDC may face a final round of price correction in late August or early September, which will further impact performance.” Philip Capital has cut Ebitda estimates for FY26 by 6%.

The Supreme Court ruling

The mining industry is also assessing the financial liability arising from the recent Supreme Court ruling upholding the right of state governments to impose taxes on minerals mined in their respective states. The court decision is retroactive, applicable from 2005, meaning that miners would have to pay the back taxes also in cases where states had raised the demand. However, states have the right to waive the back taxes.

According to NMDC management, the immediate liability arising from the decision is only ₹21 crores. However, there are similar cases pending before the court in which NMDC would face liability of Rs. ₹2,644 crore if the same judgment is passed. Despite the company’s claim that it would be able to recover this amount from its customers, it could be a long and time-consuming process. Apart from past liability, NMDC would not be hit by the imposition of any tax in the future as its sales contracts allow it to pass on all taxes and government levies to the buyers.

The decision on retrospective levying of taxes will hit mineral consumers the hardest, with minimal impact on miners such as NMDC and Coal India, according to Nuvama.

NMDC Steel Shares

On the positive side, the company’s demerged business, NMDC Steel Ltd, which had been running at lower capacity utilisation due to evacuation issues, is expected to start generating profits in the second half of FY25. The commissioning of a railway line, expected by the end of September, would help it achieve full capacity utilisation. NMDC Steel should ₹NMDC received Rs 2,400 crore, nearly 30% of its pre-tax profit for fiscal year 2024, and would have to return this amount once it starts generating enough cash. NMDC could also recover the entire amount if the proposed privatisation of NMDC Steel goes through.

While the company achieved higher realisation in the first quarter of fiscal 2025, lower production led to an 8.2% drop in sales volumes. Production declined by 14% last quarter to about 9.2 million tonnes (mt) due to labour issues. While the company has maintained its volume guidance at 50 mt for fiscal 2025 as against 45 mt in fiscal 2024, it may be a difficult task to meet this target given that production in the second quarter of fiscal 2025 is likely to be impacted due to flooding after a subdued first quarter of fiscal 2025. To some extent, higher production would help the company’s profitability as almost 90% of its cost is fixed in nature.

NMDC’s share price has not changed much since the Q1 FY25 results despite a strong performance. In fact, the stock is down around 10% over the past six months amid weakening market dynamics. The stock is trading at 6.5 times the FY25 consolidated EV/Ebitda estimate. A reversal in iron ore prices may act as a trigger in the coming months.