NMDC poised for iron ore growth through capacity expansion and resilient domestic pricing

Investment View and Key Drivers

Motilal Oswal Financial Services reiterates its BUY rating on NMDC with a target price of Rs 98, compared with a CMP of Rs 85. The broker views India’s largest iron ore producer as well positioned to benefit from a structural rise in domestic iron ore demand while remaining relatively insulated from global iron ore price volatility.

The constructive view is supported by NMDC’s approximately 16% market share, large long-life reserves in Chhattisgarh and Karnataka, improving logistics, visible production growth and accelerated capacity expansion. The broker also sees limited risk of import substitution because NMDC’s domestic ore remains competitively priced.

Domestic Steel and Iron Ore Demand Outlook

Motilal Oswal expects India’s crude steel capacity to increase to about 300 mtpa by FY30 from 233 mtpa in FY26. Within this, BF-BOF capacity could reach 140-165 mtpa, translating into domestic iron ore demand of around 380-400 mt.

NMDC is expected to be a major beneficiary of this demand growth because of its reserve base and exposure to the domestic market. The broker expects domestic iron ore prices to remain resilient despite additional global supply, as NMDC ore trades at around a 30% discount to import parity, making low-grade imports uneconomic for domestic steelmakers.

Production Growth and Mine Ramp-up

NMDC’s iron ore production recovered to 53 mt in FY26, up 21% year on year, after FY25 output of 44 mt was affected by a 45-day strike. Management has guided for around 60 mt of production in FY27, while Motilal Oswal estimates standalone production of 58.5 mt, with the remainder expected from the NMDC-CMDC joint venture mines.

Production growth is expected from the ramp-up of existing mines and additions at Bailadila. Key volume contributors include:

• Deposit-4: Management has guided for production of 1 mt in FY27 and 2 mt in FY28. Rated capacity of 7 mtpa is expected within two to three years.
• Deposit-13: Production is expected to begin after the monsoon once the remaining approvals are received. Management has guided for 0.5 mt in FY27 and 2 mt in FY28.
• Deposit-14 and NMZ: Each is expected to contribute around 1 mt.
• Kumaraswamy: Production is expected to increase by 1.3 mt.
• Deposit-5: Output could rise by 2 mt to 12 mt after conveyor commissioning.

Capacity Expansion, Capex and Logistics

NMDC is entering a substantial investment cycle. The company spent Rs 3,300 crore in FY26 and plans to invest Rs 6,000 crore in FY27, followed by annual capex of Rs 7,000-10,000 crore during FY28-FY30.

During its Q4 FY26 commentary, management expressed confidence that NMDC can achieve 100 mt of iron ore capacity by FY30. The Kirandul complex is targeted to expand from around 21 mtpa to 30 mtpa, while Bacheli is expected to increase from 18-19 mtpa to around 35 mtpa.

The 131 km Kirandul-Jagdalpur railway-doubling project is nearing completion, with the remaining two sections expected by December 2026. The project should raise evacuation capacity from the current 28-30 mtpa to 40 mtpa initially and ultimately to 60 mtpa.

Blending Hub and Coal Diversification

Management has approved a Rs 3,000 crore blending hub at Vizag on around 1,100 acres. Expected to be operational in two to two-and-a-half years, the hub is intended to supply branded ore with consistent iron, alumina, silica and phosphorus specifications. This could improve blast-furnace efficiency for customers and potentially enable NMDC to earn a premium.

In coal, Tokisud production is expected to commence from Q2 FY27. Management has guided for FY27 production of 0.75-1 mt, revenue of Rs 500-600 crore and an EBITDA margin of 30-40%. Rohne is expected to commence by the end of Q3 FY27, although meaningful production is not expected during FY27. Management expects coal operations to generate annual revenue of Rs 5,000-8,000 crore within three years.

Global Supply and Pricing Considerations

Global supply remains a key counterpoint to the investment case. Motilal Oswal expects around 300 mt of incremental annual global iron ore capacity over the next four to five years, including 100-120 mtpa from Simandou. This could keep seaborne iron ore prices range-bound near US$100 per tonne.

However, the broker expects NMDC’s domestic pricing to remain resilient because its ore trades at around a 30% discount to import parity. This discount makes low-grade imports uneconomic for domestic steelmakers and provides relative insulation from global price volatility.

Financial Forecasts

Valuation and Balance Sheet

The Rs 98 target price is based on 6.5 times FY28E EV/EBITDA. The valuation uses FY28E iron ore volume of 58.5 mt and EBITDA per tonne of Rs 2,004, along with net cash of Rs 9,390 crore.

NMDC had net cash of Rs 5,500 crore in FY26 and is expected to generate around Rs 20,000 crore of operating cash flow over the following two years. This should support the planned capex without excessive leverage.

Key Risks

• Regulatory and policy changes.
• Execution delays or failures across mine expansions, infrastructure projects and other investments.
• A global iron ore price slump caused by higher-than-expected supply or weaker demand.