NMDC trades in the green, 5 months on: A look at the factors behind the rally

In the last three months, it has gained 33 percent. The stock has clocked gains every single month since August 2022

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The share price of NMDC gained over 1.5 percent on January 2 as the stock remains buoyant on demand prospects from China, price hikes and demerger of its steel business.

The counter is also in focus as Life Insurance Corporation of India has pared its stake in the company by 2.07 percent through open market transactions. The LIC holding in NMDC has now reduced to 13.69 percent from 15.77 percent earlier.

At 10am, the stock was quoting at Rs 124.80 apiece on the National Stock Exchange, higher by 1.4 percent. In the last three months, it has gained 33 percent. The stock has clocked gains every single month since August 2022.

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In October 2022, the company formally de-merged its steel plant at Nagarnar, which will now be listed separately. The finance ministry had in December invited initial bids for the plant and offered to sell a 50.79 percent stake in the company.

The last date for submission of bids is January 27, 2023 as per the expression of interest (EoI). As per Nuvama Research, the new stock might list at Rs 35 per share.

The demerger has improved investor sentiment for NMDC, believe analysts. “Any additional capex now on the steel plant will be through the balance sheet of the steel plant without recourse to the mining business. NMDC does not have a very large capex pipeline for the mining business, hence, we expect a strong dividend,” according to domestic brokerage firm Motilal Oswal Financial Services.

Another trigger for the stock has been the uptick in production. NMDC reported iron ore production in November at 3.61 million tonnes and sales at 3.04 MT, 8 percent and 5.5 percent higher compared with the same period last year.

“Amid an upswing in demand for steel, the company is on course to enhance production and ensure a healthy supply of iron ore consistently” CMD Sumit Deb said.

The upswing in demand comes from the gradual reopening of China, which is the largest consumer of metals.

“China has unveiled a comprehensive plan to support the property markets, and has set a new direction for Covid policy to stabilize the economy which, long with other stimulus measures, should drive a recovery in metal demand in 2023,” Jefferies said.

Also Read: Nifty metal hits new high after Jefferies turns positive, upgrades Tata Steel, Hindalco

With demand uptick, the company has also hiked prices. The state-run miner increased the prices of iron ore by Rs 300 per tonne to Rs 4,100 per tonne from Rs 3,800 per tonne effective from November 30.

Similarly, the price of fines has been revised to Rs 2,910 per tonne from Rs 2,610 per tonne announced earlier.

As per Bloomberg, there are 16 ‘buy’ calls on the stock, five ‘hold’ calls and one sell call. Motilal Oswal Financial Services has a Rs 138 target price on it.

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