Challenges with NMDC Steel Ahead but Optimism Prevails.
NMDC Ltd’s CMD, Amitava Mukherjee, has announced that NMDC Steel, the steel subsidiary of state-owned NMDC Ltd, is targeting a production of at least 1 million tonnes of steel in the first half of FY24. This ambitious goal comes despite facing significant logistical challenges due to the non-availability of lime, a crucial ingredient for steel production.
NMDC Steel’s Path to Profitability
The journey to profitability for NMDC Steel is expected to be gradual. The company is projected to reach a break-even point at approximately 2 million tonnes of sales volume.
Mukherjee also highlighted the company’s efforts to maintain a consistent margin of around 40%. With the current pricing trends and increasing production volumes, operational costs are anticipated to decrease slightly, allowing the company to uphold an EBITDA margin of approximately 40%, with minor fluctuations.
Debt and Disinvestment Plans
NMDC Steel currently shoulders a debt of around Rs 5,000 crore.
There has been a significant interest in the NMDC Steel disinvestment plan. Several bids based on Expressions of Interest (EOI) have been received, and the finalisation of the share purchase agreement is underway.
The divestment process for NMDC Steel is expected to gain momentum in the coming days.
Commissioning of Steel Plant
The steel plant, situated at Nagarnar in Chhattisgarh, boasts an annual capacity of 3.5 million tonnes. The plant’s blast furnace was recently commissioned and is already producing hot metal at around 3,000 tonnes per day.
Full commissioning or commercial production is anticipated in the next few days, with the management expecting the process to stabilize in the subsequent weeks.
Future Plans and Production
Company officials have outlined a plan to produce around 1 – 1.5 Metric Tonnes of steel in the initial 12–18 months, with an eventual ramp-up in production. The products will be of premium quality, and the break-even is projected at 2 mt.
In short, NMDC Steel is a loss making company at this point with a debt of Rs. 5000 crore. While NMDC Steel faces challenges, especially with the lime shortage, the company remains optimistic about its production targets and profitability in the coming fiscal year.
NMDC Steel share price is up 12.49%, trading at 52.25 INR at the day’s closing.
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