NMDC Ltd’s price cuts undertaken earlier this month reflect the subdued outlook for the iron ore market. Still, domestic prices are at a much lower discount to import parity prices compared to the long-term average, which may warrant further price cuts.
The domestic iron ore market is projected to record a surplus of 32 million tonnes (mt) in FY26, up from 18 mt in FY25 and 2 mt in FY24, owing to a significant rise in production and a drop in exports, according to a Kotak Institutional Equities report on 13 June. The issue of environmental clearance to Lloyd Metals and Energy to expand capacity to 26 million tonnes per annum (mtpa) from 10 mtpa, and higher captive mining by steel producers is expected to push up domestic production.
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Also, lower global prices at about $95 per tonne (the FY25 average was $109), are putting pressure on exports, which are down by 46% in the first two months of FY26. Prices are expected to stay around this level with sluggish demand in China. Kotak estimates NMDC’s selling price for fines and lumps to fall by 15% and 16% year-on-year in FY26, leading to a 9% drop in Ebitda per tonne to ₹1,684. NMDC’s Ebitda per tonne rose 13% to ₹1,847 in FY25 thanks to a 11% and 14% increase in prices.
Capex plans unaffected
Nonetheless, the company continues with its capital expenditure (capex) plan to raise its capacity to 100 mtpa by FY30, from 50 mtpa at present. FY26 capex is projected at ₹4,000 crore, slightly more than ₹3,700 crore in FY25. Projects worth ₹8,600 crore are under execution, while ₹20,000 crore are in the tendering phase, which should increase its capex starting FY27. It is also evaluating mining assets abroad and hopes to acquire a few mines this year.
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NMDC expects to reach full capacity at its recently commissioned pellet plant and export 2.5 to 3 mt of pellets, against 0.5 mt in FY25. It also plans to produce higher grades of pellets, which would fetch a premium of $30-40 per tonne.
Meanwhile, Karnataka’s minerals tax bill, if approved by the President, could significantly increase NMDC’s liability. The stock has declined more than 12% since the bill was cleared by the state cabinet on 6 December. At an enterprise value of 5.9 times its estimated FY26 Ebitda, as per Bloomberg, the stock trades above its five-year average valuation. While the stock faces near-term pressure, an acquisition abroad could give it a fillip. At 12.30 pm on Monday the stock was trading around ₹69.77, down 0.85% on the day and down more than 21% over the past year.
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