NMDC Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Best-ever H1, but FY25 stagnation flagged: Q2 and H1 production and sales hit all-time highs, yet management guided to a plateau at 51–52 mt for FY25, with the next major volume jump two financial years away.
• Domestic pricing is structurally preferred: Realizations net of the 30% export duty, port charges and freight make domestic sales more profitable than exports, even at a 45% discount to export parity.
• Capex execution has turned a corner: A new, empowered project vertical delivered spend 80% above targets and 40% above last year; management expects a quantum jump from Rs.2,000 Cr to Rs.4,000–5,000 Cr annually over the next three to four years.
• Product mix shift underway, with a margin opportunity: Demand for fines is outpacing lumps, and management sees a 15–20% realization uplift from customized products, with a marketing study due by year-end.
• What to watch next quarter: The pricing decision due in days, the commissioning of the Bacheli fifth line, and any clarity on the NMDC Steel divestment timeline.

Production & Volume Outlook

• Record output, but near-term ceiling: Every month up to October except one saw best-ever production and sales; management is sticking to a 47–49 mt target for FY24 and hopes to hit ~50 mt.
• FY25 stagnation confirmed: Production will stagnate at 51–52 mt in FY25, with no output beyond 52–53 mt; the next major ramp-up arrives only after two financial years.
• Evacuation bottleneck is rakes, not line capacity: The single railway line has a 2.8 Cr tonne capacity; the constraint is rake availability, not the line itself. Over 100 km of the 131 km doubling is commissioned, with railways expecting completion by fiscal year-end.
• New capacity coming online: The Bacheli fifth line is ready, load-tested, and awaiting Consent to Operate; commissioning is expected in four to five days. The Kumaraswamy mine awaits one final approval, expected within a week to 10 days.
• SP3 delays: The rapid wagon loading system will commission after November 17, pending consent; the stacking yard is delayed to around 2025 due to monsoon damage to a gathering wall.

Mukherjee: "a lot of bureaucracy in the project management has been cut and that is what you see the results that we are about 80% higher than our targets and 40% higher than as compared to last year"

Pricing & Realization Strategy

• Export is uneconomic: Domestic realization exceeds the net back from exports after the 30% export duty, port charges and transportation; management stated there is no economic case for exporting currently.
• Discount structure: The traditional discount at the East Coast versus export prices has been 40–45%; even at a 45% discount, domestic sales are preferred purely on economics. Karnataka prices are structurally lower due to quality differences and lack of market access beyond the state.
• Customized products as the next margin lever: Management expects a 15–20% realization jump from serving customers with customized products rather than vanilla off-mine-head ore. Consultants (McKinsey, BCG, Deloitte) are studying market requirements, with a marketing policy study expected by this financial year.
• Lump-to-fines demand shift: Demand for fines has picked up much better than lumps, and headroom for fines pricing may be slightly better; management is designing the product portfolio around a view that lump demand will substantially reduce over the next 5–10 years while fines demand rises.
• Pricing decision imminent: Management will take a call on pricing in the next two to three days.

Mukherjee: "I make more money net of taxes, net of transportation, and net of duties through domestic sales rather than through export sales."

Capex Acceleration & Project Pipeline

• Execution turnaround: A new project organization vertical was created with senior officials as heads of projects at Kirandul, Bacheli, Jagdalpur and Donimalai, independent of production units, with massive delegated powers. The result: spend is 80% above targets and 40% above last year.
• FY24 capex to cross Rs.1,600 Cr: Management expects to land in the Rs.1,800–2,000 Cr range, and next year will be even higher as another two to three projects come up.
• Quantum jump ahead: Annual capex must rise from Rs.2,000 Cr to Rs.4,000–5,000 Cr over the next three to four years to build the organization for a 10 Cr tonne outlook.
• Key project milestones: The slurry pipeline has 70+ km of 113 km stringing and laying done; the beneficiation plant contract was awarded six months ago and is expected by end-2024 or early 2025. The SP2 tender at Donimalai should be awarded around mid-next month.
• Pellet plant on hold, capacity being reworked: The Donimalai pellet plant (0.12 Cr tonnes) has never worked well due to slimes feed issues, regulatory problems and a tailing dam dispute. An in-principle decision has been taken to increase the planned new pellet plant from 0.2 Cr tonnes to 0.6 Cr tonnes, with engineering and economics being worked out.
• Stockyard strategy: The Kumar Marenga stockyard near Jagdalpur is already commissioned; management plans to build many more stockyards to cater to different customer segments.

Diversification: Steel, Gold, Lithium & Diamonds

• NMDC Steel ramp-up: The plant is operating at 40–45% capacity; management expects to reach 70–80% by fiscal year-end and full capacity next financial year. Commissioning was a record: finished hot-rolled product within nine days of getting hot metal.
• Steel divestment unclear: Management has no clear visibility on the NMDC Steel divestment timeline and declined to comment on the current status.
• Gold mine commissioned in Australia: A small gold mine (~1 tonne production) is operational; six nearby mines will be explored simultaneously, with management expecting a fairly big gold presence in around 24 months.
• Lithium PFS starting next April: A pre-feasibility study will begin next April and take around 18 months.
• Magnetite project: A PFS is underway; if viable, the plan is to start with 1 Cr tonne mining, scalable to 2.5–3.5 Cr tonnes.
• Diamond mine cleared: Supreme Court clearance has been received; environmental clearance is being pursued. Mining can begin within a month of EC approval, though initial output will be only ~10,000 carats in the first year while the mine is redesigned over a couple of years.

Financial & Capital Allocation

• Dividend policy: The company must pay a minimum dividend of 30% of net profits or 5% of net worth; it has traditionally paid 40–45%.
• Project returns: Mining projects carry ROI well above 50%; allied capex has ROI of 20–25%. Customized product facilities are expected to generate ROI around 25% due to higher value realization versus vanilla products.
• RINL supply increase: Supply to RINL rose 10% in H1 to 30 lakh tonnes, up from 27 lakh tonnes last year.

Transformation & Sustainability

• Company-wide reorientation: Management stated the company is under a major transformation, starting with the logo change, and aims to reorient the entire way products are sold and which products are sold.
• Sustainability department established: A full-fledged sustainability department has been set up, with management emphasizing the tagline "the responsible miner" and a commitment to grow while being more responsible to all stakeholders.

Mukherjee: "the company is under a major transformation right now starting with what we have seen with the logo itself"

Guidance & Commitments

Key Metrics