NMDC Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Record production, soft financials: Q3 production hit an all-time high of 1.06 crore tons, but turnover, EBITDA and PAT dipped substantially YoY due to low steel and iron ore prices through most of the quarter.
• Volume growth is the explicit bet: Management targets at least 5 crore tons in FY24, a ~1 crore ton YoY jump from a flat current year, with the KK railway doubling and slurry pipeline as the enablers.
• Exports are back on the table: With the export duty withdrawn and international prices picking up, management sees a clear realization delta and expects some exports as early as Q4.
• Nagarnar steel plant nears commissioning: The blast furnace is ready, Coco batteries are producing, and the plant is set to begin commissioning at the start of the next financial year; the separate listing is expected by end of this month.
• What to watch next quarter: Whether Q4 volumes match last year’s Q4, the pace of the ~50% monthly production ramp-up needed to hit the FY23 target, and any concrete export volumes or pricing.

Production & Volume Ramp-Up

• Record quarter, uneven year: Q3 production of 1.06 crore tons was the best ever for NMDC, but Q2 volumes dropped sharply because the steel industry struggled and monsoons were exceptional, making YoY comparisons difficult.
• The bottleneck is logistics, not demand: Demand is very strong with substantial orders, but production ramp-up is constrained by railway rake availability; mines lack storage space, so evacuation is the critical path.
• January run-rate implies a sprint: January production was 3.8 (implied lakh tons), leaving a required average of ~0.55 crore tons monthly over the remaining two months, a ~50% ramp-up.
• FY24 growth engine: Donimalai and Kumaraswamy mines moving from 7 to 10 MTPA will add ~0.3 crore tons from Karnataka; the balance 0.6–0.7 crore tons comes from Bailadila via a fifth line at the Chile screening plant.
• Long-term capacity target: With the KK line doubling and slurry pipeline, management sees capacity enhancing to almost 7–7.5 crore tons from current levels.

Sumit Deb: "...both these put together, I think we should be able to increase it. They should take care of to enhance the capacity to almost 7 crore tons, 7 crore, 7.5 crore tons, we should be able to go from the current levels."

Exports & Pricing

• Export duty withdrawal unlocks optionality: The previously imposed export duty has now been withdrawn, reopening a channel that was closed; management sees opportunity there.
• Price delta makes exports compelling: At current domestic prices (~INR 3,910 for fines) and international prices around \$120, management stated it makes absolute sense to export and the realization should be better.
• China demand returning: From Q3 and into January/February, there is a pickup in international prices; Chinese buyers have resumed purchasing Australian ore, reflected in prices.
• Low-grade ore strategy: NMDC intends to exploit sub-58% grade material going forward, exploring exports from Visakhapatnam or Krishnapatnam; some exports could happen at the end of Q4.
• Management declined to quantify the export delta when asked for break-even international prices or the exact margin at \$120, stating only that it looks good to export at these prices.

Sumit Deb: "At these prices it makes absolute sense for us to export material. So \$120 at There is no doubt that it makes sense for us to export with the current domestic prices in mind. So there is a delta there. Definitely if we export, the realization should be better."

Nagarnar Steel Plant & Stake Purchase

• Commissioning imminent: Coco batteries are already producing; the center plant is about to start; the blast furnace is ready; management is prepared to start commissioning activities at the beginning of the next financial year, with a target to ensure commissioning by 31st March.
• Separate listing expected by end-February 2023: The listing process for NMDC Steel should be happening by the end of this month.
• 10% stake purchase mandated: The Government of India has asked NMDC to take a 10% stake in NMDC Steel; it will be a cash purchase, with pricing to be market-determined after the stock lists and price discovery happens.
• Pricing methodology unresolved: When asked how the stake price will be determined, management declined to specify the method, stating the price has not been determined and could be book value, transfer value, discovered price, or a concession rate.

Sumit Deb: "...our target is to ensure that it gets commissioned by 31st of March, our Coco batteries are already done -- I mean they are already producing ore. The center plant is about to start. And the blast furnace is ready. So more or less, I think we are prepared to start commissioning activities in the next financial year, beginning of the next financial year."

Infrastructure Projects & Capex

• KK railway line doubling: Work is more or less over, with only 20–25% balance remaining; railways are executing work from Vizag to Jagdalpur.
• Slurry pipeline progressing: 135 kilometers of pipeline up to Jharkhandpur is in progress; Phase I is cleared up to Jagdalpur, with Phase II intended from Jagdalpur to Visakhapatnam; the 1.5 crore ton pipeline is expected to be ready sometime later next year.
• Screening and beneficiation: A screening plant at Kirandul and dry beneficiation circuits in Kirandul and Bacheli have had contracts awarded; L&T is doing the pellet plant and slurry pipeline work.
• Pellet plant at Jagdalpur: A 0.2 crore ton pellet plant is coming up, expected online by end of next year; a larger pellet plant at Visakhapatnam or nearby is being explored to utilize low-grade ore and mine slimes.
• FY24 capex: Planned capex excluding the steel plant is around INR 1,500–1,600 crores.
• Coal blocks: Two coal blocks allocated (Tokisud and Rohne, the latter with some coking coal); clearances being pursued in Jharkhand, land acquisition ongoing; exploration activities also underway in Madhya Pradesh.

Financials & Capital Allocation

• Royalty expense spike: Royalty more than doubled QoQ in Q3 primarily because production increased ~50% from 71 lakh tons in Q2 to 1.06 lakh tons in Q3; royalty is ad valorem and paid on production, not sales.
• Pellet plant losses: The pellet plant made a loss of around INR 58 crores in the 9 months; management expects the loss to be wiped off once capacity utilization reaches 55–60%, though the plant is designed for lumps, not fines, so it will take time.
• Other minerals and services: Loss of around INR 49 crores in the first 9 months.
• Other income detail: INR 280 crores one-time gain from the NINL stake sale was booked in Q2 (valued at INR 100 crores, sold for INR 380 crores); excluding that, other income was INR 41 crores vs INR 63 crores like-to-like.
• Monitoring committee money: ~INR 3,800 crores is held up; the matter has been referred to the Supreme Court and should come up very quickly; management is confident of recovery, citing the Central Empower Committee’s recommendation and stating there is absolutely no dispute.
• Cash on books question deflected: When asked why INR 8,000 crores is still kept in cash and whether there is a plan for buybacks, management responded: “We can’t answer your question ... I can’t answer this at this point of time.”
• Dividend signal: The Board has taken a decision looking at the year not yet ended; management stated “we could see something” and that the option is always open.

Sumit Deb: "Absolutely no dispute. The Central Empower Committee has also recommended the case and it is our money and there is."

Addressable Market & Client Dynamics

• No shrinking of addressable market: Nagarnar Steel Plant will be entirely dependent on NMDC; AMNS is doubling its pellet plant capacity at Vizag; JSW Dolvi is increasing capacity; the secondary sector (Lumpur segment) is not seeing much capacity enhancement but that is not a concern.
• Client captive mines are not a threat: Major clients like RJNL and JSW have had their own mines for the last year or so; it did not make a difference to NMDC, and uptake of iron ore has remained the same.
• Logistics outlook improving: Management expects rake availability to be much better next year; discussions are ongoing with railways to increase capacity and the number of rakes, currently at 15–16 rakes being loaded.

Guidance & Commitments

Key Metrics