NMDC-Value or Cyclical?

12% dividend yield might not be sustained if iron ore prices continue to be low. 12% dividend yield has to be seen in the context of sudden increase in iron ore prices at that time.

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@Surender: NMDC’s relations with people in the Bastar-Dantewada region have been relatively stable. For example, our trucks or onsite engineers haven’t complained of any troubles from the local community. However, the possibility of any future political flare ups cannot be completely ignored. It will always remain as one of the risk factors in such areas.

@Rakesh_Aggarwal : Donimalai Pellet Plant has been struggling due to issues with the plant operator KIOCL, which is another PSU. Please read Annual Report 2022 page 140-142, where the CAG Report has been very critical of the way NMDC and KIOCL have handled the Pellet Plant. The pellet plant has shown a 100% jump in production from 82k tonnes to 182k tonnes in the last 1 year. Still, this is barely 10% capacity utilisation. The Donimalai mines were not producing much iron ore due to the dispute regarding Levies and Royalties with the State Government. So the pellet plant has been starved of raw material and slimes which are used for making pellets. Now that the Royalties issue has mostly been addressed and production from Donimalai mines is increasing, the Pellet Plant will hopefully see better days. In general, NMDC’s Karnataka operations haven’t done as well as their Chhattisgarh operations.

@newbie_007: Please read the Annual Report of 2022: “NMDC has a strong history of rewarding investors with an average dividend payment of around 752.19% in the last 5 years, which is the testimony to consistently creating value for its stakeholders”.

NMDC’s current dividend pay-out ratio is 46%. Whereas the 5 year average is 40% and 10 year average is 57%. So the current dividend pay-out ratio isn’t extraordinary. However, I do agree that there is no guarantee that NMDC will continue to be generous with dividends.

@Gothamcapital: I didn’t understand your question

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As per Aug factsheet, PPFAS mutual fund has invested in NMDC.

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NMDC demerger: Bid for sale of steel unit likely to start in December | Zee Business (zeebiz.com)

According to this article, the new steel plant is valued at 21000 cr
And NMDCs mcap is 35000 cr. So the iron ore business is valued at 14000 cr, of which they have 8000 cr in cash…So at present valuations, NMDC is like very very undervalued? What am i missing?

Maybe steel plant is not worth 21000cr though company has spent that much on building it.

At the end, this article says ₹1,500 crore for 0.35 MT greenfield, with NINL being ~3MT, greenfield cost would be atmost ₹15,000 crores. At higher scale like 3MT, cost could be significantly lower. Not sure if NINL has integrated power plant, so by and large based on tech, age, maintenance etc., should be in ₹15,000 crores ballpark or less.

So ques becomes is NMDC worth ₹20,000 crores now (35-15) incl cash.

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There is also a cost of time it takes to complete a project. The greenfield project of Shyam Steel is expected to be commissioned by Sep 2025.
NINL is offering a ready to be commissioned 3MT plant.

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A cursory read on Shyam Steel ( TMT Bar Manufacturing Plants and Process with Latest Technology ) should give you the difference between what they are doing and what NMDC is doing.

NMDC starts from mining to beneficiation to handling its own logistics to shift the ores to the iron manufacturing plant to manufacturing iron then converting into crude steel and then to finished product. They have a lot of control over major cost inputs - iron ore, power and logistics. A lot of support / auxiliary facilities such as a massive investment in-house maintenance facilities / material testing labs, etc. will also play a big role in quality and cost controls. The only major input over which they have very little control is coking coal. Whereas, Shyam Steel starts their production from manufacturing of crude steel onwards. TMT bars have a different value proposition as compared to flat products or blooms / billets.

So when you read words like greenfield / brownfield in a news article, you first need to check greenfield / brownfield of what?

Comparing one plant to another without understanding the inputs, logistics and outputs of each plant will give inaccurate valuation. For example even within a single company like SAIL, their plants in Bhilai / Rourkela / Bokaro / Durgapur / Burnpur / Bhadravati / Chandrapur have very different value proposition. Each plant will need to be assessed & valued individually.

This reminds of the (in)famous public statement by the former CEO of Arcelor Mr. Guy Dolle, a few days after Mittal Steel announced plans to take over Arcelor in 2006 that “Mittal Steel made ‘eau de cologne’ while Arcelor created perfume”. While that comment was widely panned for sounding a bit racist, the crux is correct that you cannot value all steel plants equally on the basis of valuation/tonnage metric.

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Shyam steel would be making steel thorugh DRI route whereas NMDC plant is from Blast furnace route.