NMDC faces twin challenges of weaker offtake and prices after a muted Q1
The divergence in the company's sales and production growthcould continue in the monsoon-driven seasonally weak Q2.
NMDC Ltd’s sales volumes are failing to catch up with strong production growth. This meant weak June quarter (Q1FY27) results. The state-owned iron ore miner’s production grew 26% year-on-year to 15.2 million tonnes (mt) last quarter, but offtake rose only 1.8% to 11.7 mt.
This divergence could continue in the monsoon-driven seasonally weak Q2. Despite a price cut on 10 July, sales declined by 1.7% year-on-year last month, prompting the company to cut prices again on 8 August. The two reductions amount to over 7%, with prices now trailing the Q2FY26 average.
Production of iron ore , used to manufacture steel, rose 31% in July, reflecting the management’s focus to meet the FY27 guidance of 60 mt (53mt in FY26).
“While production growth outlook remains robust, iron ore prices are likely to remain under pressure in the near term on higher domestic ore availability, lower international prices and slower steel capacity additions in the near future,” ICICI Securities noted, cutting its price target for the stock to ₹ 95 from ₹ 100.
NMDC is focusing on other measures to reduce its vulnerability to iron ore price fluctuations. This includes increasing the output of value-added products such as pellets that fetch a higher Ebitda margin of 42-43% vis-à-vis the aggregate Ebitda margin of 29% for FY26. Pellet production is targeted at 3 mt to 3.3 mt in FY27, from 2.4 mt in FY26.
NMDC’s diversification into coal mining should also start generating revenue as the Tokisud Jharkhand mine is expected to be commissioned in Q2. Jharkhand’s Rohne coking coal block is expected to start overburden removal in Q3, followed by coal production in FY28.
NMDC is targeting 2 mt of production from the mine in FY28, against a peak-rated capacity of 8 mt per annum. The company expects its coal business to contribute about ₹ 5,000 crore in revenue over the next three years.
“Over the medium term, the ramp-up of coal assets and a higher contribution from value-added products, including branded blended iron ore and DRI-grade pellets, offer optionality to diversify beyond the core iron ore business,” Systematix Institutional Equities said.
DRI-grade pellets are premium, high-purity iron ore pellets used to produce direct reduced iron (DRI), also known as sponge iron.
NMDC’s Q1 revenue rose barely 2% year-on-year to ₹ 6,795 crore. Realization growth of 4% and higher volumes were offset by the 50% drop in the ‘pellets and other minerals’ segment, which formed 4% of the quarter’s total revenue.
Ebitda was flattish at ₹ 2,470 crore, a sharp moderation from the 30% growth in Q4FY26. Profitability was hurt by muted revenue growth, higher royalty and other expenses.
NMDC’s shares have fallen about 14% from their 52-week high of ₹ 97.49 on 3 June, reflecting the earnings pressure. Still, the stock trades at an enterprise value of 5.9 times one-year forward Ebitda, according to the Bloomberg consensus, above its long-term average.
Investors should monitor the pick-up in offtake and prices trend after Q2 for further cues.
The Mines and Minerals (Development and Regulation) Amendment Bill, 2026, passed by parliament earlier this month, should remove the overhang of the Karnataka (Minerals Rights and Mineral Bearing Land) Tax Bill passed by the state assembly in December 2024.
The Karnataka bill had imposed additional levies on NMDC, prompting the company to declare a contingent liability of ₹ 15,800 crore, which gets overruled by the central bill.
