ICICI Securities’ recommendation to buy NMDC (National Mineral Development Corporation) with a target price of Rs. 180, as outlined in their research report dated September 13, 2023.
NMDC: A Positive Outlook
ICICI Securities has upgraded its rating on NMDC from “ADD” to “BUY” based on several positive factors and a promising outlook for the company.
Factors Driving the Upgrade:
- Sales Volume Expectations: NMDC is expected to achieve sales volumes in FY24 that may exceed the 32-40 million tonne range. This suggests strong demand and sales performance for the company.
- Long-Term Volume Visibility: The company is actively working on a roadmap to achieve a production capacity of 100 million tonnes per annum (mtpa) by FY30. While this goal is aspirational, it provides clearer long-term volume visibility for NMDC.
- Opportunities in Commercial Mining: The report highlights that commercial mining activities in Odisha are progressively expanding, presenting NMDC with additional opportunities for growth.
- Improved Return on Equity (RoE): The RoE for NMDC is expected to improve further from its current level of 22%. This improvement is attributed to the mining business taking center stage and the demerger of the steel plant.
Revised Estimates:
In light of these positive factors and a favorable price outlook, ICICI Securities has revised their estimates. They have raised their FY24E/FY25E Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by 22% and 38%, respectively.
Target Price and Valuation:
To reflect the robust volume trajectory expected in the future, ICICI Securities has increased the Enterprise Value to EBITDA (EV/EBITDA) multiple to 5.5x (previously 5x). As a result, their revised target price (TP) for NMDC stands at INR 180, compared to the earlier TP of INR 130.
ICICI Securities’ Recommendation:
In conclusion, ICICI Securities’ upgrade of NMDC to a “BUY” rating reflects their confidence in the company’s growth prospects. The revised target price of INR 180 indicates their belief in the stock’s potential for appreciation.
Please let me know if you have any specific questions or if there’s anything else you’d like to discuss regarding this recommendation.
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