Break-even and stabilisation of NMDC Steel plant likely by Q2-FY25

NMDC Steel Ltd (NSL), a newly established steel factory that is now a distinct listed corporation, is expected to reach "stabilisation" and "break-even" by mid-FY25.

Break-even is expected as production at the Nagarnar plant (Chhattisgarh) remains consistent at around 1.6-1.8 lakh tonne per month (of crude steel) or around 5,000 tonnes of hot rolled coils (HRC) per day.

The plant has a capacity of 3.3 million tonnes per annum (MTPA).

According to Amitava Mukherjee, Chairman-cum-Managing Director (Acting Charge) and Director (Finance), NMDC, the break-even could happen “as early as Q1-FY25” (April-June) or latest by the second quarter (ending September).

NMDC Steel’s monthly production was ramped up to one lakh tonne in January, a 50-odd per cent increase over the 63,000–65,000 tonne per month range that the company was operating at over the last few months post commissioning (October December).

“Once we are able to roll around 5,000 coils per day, we could look at break-even by that time. So we need to ramp up by another 60-70 per cent or so,” he said during a recent earnings call. “Definitely in Q2-FY25 (for breaking even) or even in Q1-FY25,” Mukherjee said.

However, there are challenges that include constraints in terms of rake movements, and securing lime for steel-making, among others.

The steel plant was originally expected to be commissioned by end-FY23, and gradual ramp-up of capacity utilisation to an average of 55% in FY24. However, the commissioning has been delayed by five months to end-August last year.

Realisation

Current average realisation of HRC is around ₹51,150 per tonne and that of pig iron is at ₹36,500 per tonne. Realisation continues to be lesser than that of its peers.

The output from the finished steel-making facilities is mainly commodity-grade hot rolled (HR) coils currently.

“We are at a logistics cost disadvantage of around ₹2,000 per tonne to that of our peers. We have also been producing a lot of experimental items that are not readily marketable. And this has to be sold at a discount. So we have to liquidate with some amount of financial incentives (rebates and discounts). As the mill stabilises next year, the realisation will improve over this year,” Mukherjee said.

Ratings agency ICRA said Nagarnar’s upstream facilities have ramped up at a faster rate (Q3-FY24 exit capacity utilisation for the blast furnace and coke oven being at 45% and 63%, respectively) than the downstream one.

Debt servicing and divestment

The company also has sizeable annual debt servicing requirements (principal and interest) starting soon.

Free cash and bank balance stood at ₹700 crore, as on December 31, 2023, on top of the undrawn working capital lines and input tax credit of ₹2,100 crore, which would support the funding requirements till the plant starts generating positive cash flows, ICRA said in the report.

As on September 30, 2023, NMDC has provided non-current interest-free advance of ₹2,503 crore to NSL on flexible repayment terms.

“So capacities go up to 65-70% or so and the company starts generating cash profits, debt repayments will begin,” Mukherjee said.

According to him, there have been substantial interest in the disinvestment activities in the “state-of-the-art steel plant”. But the privatisation process is being looked at by DIPAM. “I have no visibility on that. DIPAM is running that process,” he said.