Nuvama Institutional Equities has upgraded its rating for NMDC Ltd shares to 'Buy' from 'Hold', even after the state-owned iron ore producer reported a first-quarter (Q1 FY27) EBITDA that marginally missed analyst estimates. Despite the slight miss, Nuvama analysts anticipate a positive outlook for the stock, adjusting their 12-month target price.
Q1 FY27 Performance Overview
For the first quarter of fiscal year 2027, NMDC reported an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of ₹2,470 crore. This figure was slightly below Nuvama's estimate of ₹2,620 crore. On a year-on-year (YoY) basis, the company's EBITDA remained flat. The EBITDA per tonne saw a marginal decline of ₹46 YoY, settling at ₹2,106.
Nuvama noted that NMDC's performance was bolstered by a 2% increase in volumes YoY and a rise of ₹416 per tonne in blended realisation. However, these gains were partially offset by an increase of ₹652 per tonne in royalty and premium costs, impacting the overall profitability per tonne.
Why the Upgrade to 'Buy'?
The brokerage firm justified its upgrade by stating that domestic iron ore prices are likely to have reached their bottom. Nuvama expects higher volumes to significantly support NMDC's earnings growth during the second half (H2) of FY27. This optimistic forecast underpins their revised recommendation.
Nuvama currently values NMDC at 9 times its estimated earnings per share (EPS) for FY28. At its recent closing price of ₹85.10 on Monday, the stock trades at 7.6 times FY28E EPS, suggesting a potential upside based on Nuvama's valuation model.
Revised Target Price and Receivables
While upgrading the stock, Nuvama slightly lowered its 12-month target price for NMDC shares to ₹97, down from its previous estimate of ₹100. This revised target still indicates a potential upside of 13.98% from the stock's closing price of ₹85.10 on Monday.
Regarding receivables, NMDC's key receivables increased by ₹130 crore quarter-on-quarter (QoQ) to ₹9,560 crore. Conversely, total outstanding dues from Rashtriya Ispat Nigam Ltd (RINL) and NMDC Steel saw a combined decline of approximately ₹117 crore QoQ, settling at around ₹11,160 crore. Specifically, NMDC Steel's outstanding dues decreased by ₹240 crore to ₹6,450 crore, while RINL's dues rose by ₹126 crore to ₹4,710 crore. Nuvama believes that NMDC Steel achieving profitability would significantly contribute to the recovery of these outstanding receivables.