NMDC is a good stock bet for long-term investors | Economic Times

After rallying to $230 per tonne in May, international iron ore price has corrected significantly. However, after reaching a 52 week low of $103— down 55% from peak, iron ore prices have started bottoming out and now trading around $122. The recent underperformance of NMDC, India’s largest merchant iron ore miner, is mostly because of this factor. NMDC has crashed 25% during the last five months compared to 9% gain in Sensex and 25% gain in ET Metal Index. The recent government divestment through open for sale (OFS) route is another reason for its underperformance.Being a public sector undertaking, NMDC was quoting at reasonable valuations and analysts are getting bullish on this counter now because the recent correction has brought down its valuation to still lower levels. For instance, its PE is less than 5 now and has a dividend yield of more than 5%. The stock is also trading at significant discount to global iron ore miners.Though recent fall in iron ore prices will negatively impact NMDC’s profitability in the short term, the same will not impact its long term fundamental strength because NMDC is one of the lowest cost iron ore producers in the world. NMDC’s efforts to increase production have also started bearing fruits. For instance, NMDC’s 2021-22 iron ore volume is expected to reach 44 mt, compared to 34 mt in 2020-21.NMDC’s three mtpa integrated steel plant at Nagarnar is almost ready and analysts are hopeful that the same will be commissioned during the fourth quarter of 2021-22. Due to continued delay in commissioning, the market is not giving much value to this steel plant now and therefore, its commissioning will be a major trigger for the counter. NMDC also plans to demerger and divest the same after commissioning. Domestic and global steel majors are expected to show interest in this divestment because the steel prices at higher levels now and also because of their desire to be the number one steel producer.Despite the capex related to Nagarnar steel plant, NMDC is expected to generate a free cash flow (FCF) of more than Rs 6,000 crore in 2021-22. With cash hoarding of Rs 5,800 crore as on March 2021, NMDC is a cash rich company. Since the proceeds from divestment will add to this cash hoard, maintaining high dividends in future won’t be a problem for NMDC. 87037386 Selection methodology: We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.