Continuing their bearish trend for the second consecutive trading session, shares of NMDC, India’s largest iron ore producer, fell another 3.5% in today’s intraday trade on March 11, to ₹63.71 apiece. This decline came after domestic brokerage firm Kotak Institutional Equities cut its target price on the stock to ₹55 apiece from the earlier target of ₹66, while maintaining its ‘Sell’ call.
The cut in target price follows a decline in iron ore prices, driven by an increasing market surplus for seaborne iron ore and rising supply pressure in India with the ramp-up of merchant iron ore mines, directly competing with NMDC’s Chhattisgarh mines.
The brokerage expects seaborne iron ore prices to remain subdued over CY2025-27E, citing rising protectionist measures against Chinese steel exports and weak domestic demand, which could reduce Chinese steel production and, consequently, global iron ore demand.
It further noted that the increase in Tier-1 iron ore supply, primarily driven by the Simandou mine, could result in a significant market surplus over CY2025-27E. Media speculation regarding Chinese steel capacity cuts through supply-side reforms, if implemented, could further expand this surplus. As a result, the brokerage estimates seaborne iron ore prices at $95/$90/$85 per ton for FY2026/27/28E, given the surplus market conditions.
On the domestic supply front, it expects higher iron ore availability due to both lower exports and the ramp-up of merchant iron ore mines, leading to an increased surplus in India over FY2026-27E. NMDC recorded flat year-on-year volumes in 11MFY25, against its guidance of 10% YoY growth, and the brokerage anticipates continued volume disappointments amid rising domestic supply.
NMDC’s expansion plan to 100 MTPA capacity has an inferior return profile, given its high capex (Rs700 billion over the next five years), which could suppress free cash flow (FCF) if pursued, the brokerage noted.
Karnataka Tax Bill: A key overhang on earnings
The Karnataka state government is proposing an additional royalty of 22.5% and a mineral rights tax of ₹101 per ton, which, if implemented, could impact NMDC’s EBITDA by 14%/47% in FY2026E for Karnataka and pan-India, respectively. As of today, the bill is pending the Governor’s assent. The brokerage noted that a higher tax rate is not factored into its base case, awaiting a final outcome.
Given the rising headwinds, the brokerage cut its EBITDA estimates by 11% and 8% for FY2026 and 27E, factoring in lower volumes and revised iron ore price forecasts. It sees significant downside risks to consensus earnings and believes current estimates fail to fully capture the impact of price and volume pressures.
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