NMDC Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Record Q4, but profit flattered by one-offs: Production and sales hit an all-time high for a fourth quarter, yet net profit of ₹550 Crores was materially aided by ₹1,230 Crores in extraordinary items from the NINL sale and a Supreme Court refund.
• Volume-led FY24 thesis, with a pricing caveat: Management guides FY24 production and sales of 46 to 4.95 crore tonnes and net profit above ₹5,500 Crores, betting that volume growth will offset an expected pricing challenge in the first two quarters.
• The steel plant overhang is resolving: The demerged Nagarnar steel plant will be commissioned by end of June, converting a non-interest-bearing inter-corporate outstanding of ₹2,500 Crores into a performing asset or a receivable upon any strategic sale.
• Capex is the stated priority over shareholder returns: Management explicitly prefers to invest cash into the 10-crore-tonne capacity target rather than buybacks, planning at least ₹2,000 Crores in FY24 capex and ₹3,000 Crores annually thereafter.
• What to watch next quarter: Whether the Q1 volume momentum holds through the monsoon, the trajectory of domestic iron ore prices against a weak international backdrop, and any progress on the slurry pipeline or pellet plant tailings permissions.

Production & Sales: The Volume Bet

• Record-breaking quarter: Q4 FY23 was almost the best Q4 ever in both production and sales, with March alone achieving a historic 0.55 crore tonnes, a level never before reached in a single month.
• Momentum carried into FY24: April 2023 was the biggest April ever, and management stated that progress in May was "much more satisfactory" than previous Mays, though it declined to share specific figures.
• The production-dispatch lockstep: Mines are on hilltops with very limited stocking capacity, now almost full, so production cannot increase unless dispatches keep pace. March's record was possible only because railways provided adequate rakes.
• KK line doubling is helping, but not the bottleneck: 110 km of the 131 km doubling to Nagarnar is complete, with the remaining stretch expected by end of 2024. The real constraint is rake availability, not line capacity.
• Client concentration is a structural reality: 80% or more of sales come from four clients, with JSW and RINL accounting for over half. The iron ore market is geographically segregated, and the client base has been stable.
• New demand from existing clients: Management's optimism on offtake rests on new plants coming up in NMDC's served geographies and capacity expansions by its major existing clients, rather than on adding new customers.

Mukherjee: "Q4 has been as you know you have seen the numbers have been extraordinary for us. It is almost the best Q4 ever both in terms of production and in terms of sales."

Pricing & Export Economics

• Prices held despite headwinds: NMDC held domestic prices even as Chinese price cuts and international weakness created pressure. At $100 international prices, east coast domestic prices are at least a 30% discount to international landed cost, while the west coast spread is only about 10%.
• The asymmetric tariff trap: A 30% export duty versus a 2.5% import duty means Indian miners bear the full brunt of lower international prices but cannot capture the upside when international prices rise.
• Exports are not viable, and won't be soon: Even at $180/tonne international prices, domestic realization exceeded net export realization after accounting for the 30% export duty, $20 logistics to Vizag, $4-$5 port handling, and 19.8% royalty. Management indicated exports would become viable only above $130/tonne at current domestic prices.
• Export as Plan B only: NMDC will not rule out exports and is keeping infrastructure ready, but would only use exports to maintain volumes if a major domestic customer faces disruption, even if it means accepting slightly lower margins.

Mukherjee: "At the current domestic prices I think it will be more than $130 would become viable, 30% is export duty, $20 is the logistic cost, port cost and then there is around 19.8% on royalty and other thing that also goes from our pocket in case of exports because that is all inclusive money I get so when you work back it does not make an economic case for itself."

Steel Plant: Commissioning & Financial Implications

• Commissioning by June end: All ancillary plants (coke oven batteries, central plant, power blowing station, oxygen plant) are already commissioned and producing. The blast furnace is to be blown in around 15th June, with the mill and steel making shops by end of June.
• Coke is already generating revenue: One coke oven battery was commissioned 5-6 months back, the other about 1.5 months back. NMDC is buying coal from Australia and selling coke, generating early cash flows from the asset.
• The ₹2,500 Crores inter-corporate outstanding: This is not a loan but expenditure incurred between the appointed date (January 1, 2021) and the actual demerger date (October 13, 2022). It is non-interest-bearing and will be repaid once the steel plant starts earning revenue, or NMDC will be a creditor if the plant is sold.
• NMDC Steel as a captive customer: A long-term supply agreement is in place, and NMDC Steel will be a permanent, major customer going forward, buying around 4.5 to 0.5 crore tonnes of iron ore per annum at full capacity.
• Strategic sale process is opaque: Management stated it has no visibility into the due diligence process or the stage of the government-driven strategic sale, and declined to speculate on the 10% stake transfer price.

Mukherjee: "I do not understand about the due diligence process because we are not driving the process. The investment is being driven by the government of India by the Ministry of Finance so we do not have exact visibility about the stage it has so we are not in a position to either confirm or deny or enlighten you with the details of the process or the stage of the process."

The 100-Million-Tonne Roadmap & Capex

• Capex is the first priority: Management's stated preference is to invest all available cash into the massive capex required for the 10-crore-tonne target, explicitly prioritizing this over buybacks.
• FY24 capex of at least ₹2,000 Crores: This covers ongoing projects, with most capacity enhancement sanctions still on the drawing board and expected to be completed in the next six to nine months.
• FY25 and beyond: ₹3,000 Crores annually: Once sanctions are done, FY25 will involve tendering, and management intends to spend at least ₹3,000 Crores per year going forward to reach the 10-crore-tonne capacity.
• The 6-7 year journey: Achieving 10 crore tonnes requires operationalizing Deposit 4, Deposit 13, sourcing from Orissa, and offshore production from the Australian subsidiary.
• Kumaraswamy upgrade mid-FY24: The mine's capacity is being upgraded from 0.7 to 1 crore tonnes, with enhanced capacity expected to be operational by the middle of this financial year.
• Bacheli screening plant: This will add around 0.25 crore tonnes of capacity.

Mukherjee: "Personally, I would like to invest all of this into capex because if we are going towards that 10 crore target that we have we need some massive capex to be done because without that capex it is not going to come, so capex is right now our first priority for the enhancement."

Logistics: The Slurry Pipeline as Game Changer

• The real game changer: Management identified the slurry pipeline to Vizag and a planned branch towards Raipur as the major logistics unlock that would transform NMDC's cost structure and market reach.
• Timeline: three to four years: The slurry pipeline system is expected to be ready for use by FY2025, with the verification plant at the head end expected to be commissioned by end of 2025. Site challenges exist and work is in progress.
• Three major works progressing: The pellet plant portion is being executed by L&T, and all three major components are advancing reasonably well.

Mukherjee: "The real game changer would be when we get the slurry pipeline to Vizag and we are planning at least at the drawing board level we are planning to take the slurry pipeline another branch of it towards Raipur also. These two would be a major game changer."

Turnaround Stories: Panna, Pellet Plant & Coal

• Panna diamond mine to restart: The Supreme Court has allowed mining, and internal timelines target a 1st October start. Black turf (0.5-0.7 crore tonnes), previously waste, can now be sold in a limited way, contributing to profitability.
• Panna to turn profitable next year: Management expects Panna to more than break even and turn profitable next year. This year, losses will be minimized or the unit may just about reach breakeven.
• Pellet plant losses are regulatory, not structural: The plant was designed to process 85% slimes, but NMDC cannot use its own slimes lying 100-300 meters away due to regulatory issues tied to the Donimalai mine renewal and a tailing point dispute. Permission from the Ministry of Forest and Karnataka government is expected in 4 to 6 months.
• Coal blocks progressing slowly: Tokisud faces land acquisition issues being pursued via the Coal Bearing Act, with operations possible around FY25 or later. Rohne is targeting mining around 2025, with forest land approvals and compensatory forestation under process.

Mukherjee: "We should be able to start mining on first of October... we expect Panna more than break even and turn in profits after a long time by next year because it will be October so maybe this year it will be just the loses will be minimized or maybe we will just about reach breakeven but going forward with the mining of diamond in Panna and also the sale of black turf which was otherwise a waste material we should be able to change the colour of the profit and loss from red to black."

Guidance & Commitments

Key Metrics