NMDC stocks rise on talk of second interim dividend

NMDC’s announcement that it will consider giving a second interim dividend surprised the Street, lifting its stock 4.7% intraday on Thursday, but cooled off later to close 3% higher. The state-owned iron ore miner, which is the largest in the country, had announced the first interim dividend of Rs 9.5 per share in February, higher than Rs 8.55 in FY15 despite lower earnings over the previous year. NMDC is yet to decide the amount of the second interim dividend.

Analysts expect it to be similar to that of the first interim dividend. After paying the first interim dividend, NMDC has cash of close to Rs 40 per share. At the current market price of Rs 96, and assuming Rs 9.5 per share as the second interim dividend, dividend yield works out to be 10%.


NMDC’s stock has lost 27% in the past one year due to weak earnings in the first nine months of FY16. Net profit fell 28% due to lower volume and pricing pressure from lower international iron ore prices.

China iron ore prices were down 16% in that period. But since January 1, they are up by 21%. This has given NMDC some room to take modest price hike on iron ore lumps and fines. But analysts maintain their neutral to negative outlook on the company.

“While NMDC looks attractive given its balance sheet, dividend yield and reasonable valuations, rising domestic ore supply and low iron ore price environment cap its profitability,” said Ravi Shankar, analyst with Credit Suisse in a recent report. The stock has gained 8% in the past one month. It may continue to gain for the next few days till the exact amount of the second interim dividend is known.

Investors, however, should note that the further gains would be unlikely until the earnings pick up. Vaibhav Agarwal, research head at Angel of broking also has a negative view on the company. “Our view on the company continues to remain negative. China overhang is likely to stay and we doubt that the recent run up in the iron ore prices will sustain.”