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NMDC STEEL LTD | CREDIT UPGRADE | OPERATING LEVERAGE
NMDC Steel Ltd (₹40.27): From a ₹2,374 Crore Loss to Profitability and a Crisil 'A' Rating
15 OCTOBER 2026 | SHARE PRICE ₹40.27 AT THE TIME OF WRITING
Capacity utilisation up from 50% to 80% and about 89% by the March quarter, a Crisil upgrade from BBB+ to A, and a market value of roughly ₹11,800 crore against a net worth of ₹13,228 crore. Here is what the filings say, number by number.
My earlier note on NMDC Steel Ltd (₹40.27) examined one cost variable, the currency exposure on imported inputs. That thread still matters, because it feeds the margin line discussed below. This report looks at everything else: the plant, the balance sheet, the credit rating, the ownership story and the arithmetic of valuation. Every figure below comes from company results, the Crisil rating rationale or worldsteel. Where a number is my own arithmetic, I say so.
1 | The Turnaround in Plain Numbers |
FY26 was the year the Nagarnar plant stopped being a project and became a business. Revenue from operations rose by ₹5,138.76 crore. Profit before depreciation and tax swung by ₹3,486.24 crore. Those two numbers carry the story.
| ₹ crore | FY25 | FY26 |
| Revenue from operations | 8,503.05 | 13,641.81 (+60.43%) |
| Profit before depreciation and tax (after finance cost) | (2,368.68) | 1,117.56 |
| Profit before tax | (3,321.72) | 75.78 |
| Profit after tax | (2,373.78) | 58.72 |
| Net cash from operations | 1,965.98 | 1,795.50 |
Net cash from operations was positive in both years, at ₹1,965.98 crore and ₹1,795.50 crore. That is a useful marker of cash generation, although working-capital movements drive it heavily in a business this capital-intensive, so it is best read alongside operating profit and borrowings.
Incidentally, the gap between profit before depreciation and tax (₹1,117.56 crore, after finance cost) and profit before tax (₹75.78 crore) is depreciation of about ₹1,042 crore. That is my arithmetic. A plant of this size carries a heavy depreciation charge, which is exactly why higher volumes matter so much to the bottom line.
2 | Q4FY26: What a Ramped-Up Plant Looks Like |
The March 2026 quarter shows the operating leverage in one frame. Revenue rose 36.67% year-on-year to ₹3,879 crore, yet total expenditure fell 2.92% to ₹3,419.04 crore. Raw-material cost grew 23.20%, well below the growth in revenue. Finance cost dropped 44.10% to ₹96.42 crore.
The result: profit before tax of ₹486.10 crore against a loss of ₹664.31 crore a year earlier, and net profit of ₹391.91 crore. On 293.06 crore shares, that works out to earnings of about ₹1.34 per share in a single quarter. Operating profit for the quarter was ₹805.75 crore, an operating margin of 20.77%, the high-water mark the plant has touched so far.
Importantly, the company stayed profitable in the very next quarter. Q1FY27 net profit was ₹50.51 crore, up 97.61% year-on-year, on revenue of ₹3,661.84 crore, up 8.81%. EBITDA was about ₹400 crore, a margin near 10.9%, in line with the roughly 11% Crisil reports for FY26. After touching its peak in Q4FY26, the plant settled at the margin Crisil describes as its FY26 level, and it stayed in profit.
3 | The Plant: Utilisation Is the Whole Game |
Crisil records that capacity utilisation rose to 80% in FY26 from 50% in FY25, and reached around 89% in the last quarter of the year. Hot-rolled coil production climbed to 23.25 lakh tonnes from 14.39 lakh tonnes, an increase of about 62%. Liquid steel output was 24.25 lakh tonnes and hot metal 30.71 lakh tonnes. HR coil sales were valued at ₹11,608.58 crore.
Crisil's own observation is the most interesting line in its report: the steel melting shop "continues to have headroom for incremental volume growth."
The blast furnace is already fully utilised, so the next leg of volume growth has a defined route through the melting shop. Crisil also credits an improved product mix, including specialised grades such as auto-grade steel, for the margin gains. Finally, the plant holds concurrent ISO 9001, 14001, 45001 and 50001 certifications, a first for an Indian integrated steel plant according to the company, and runs a Level-2 automation system with live dashboards.
4 | The Credit Upgrade the Price Has Barely Noticed |
On 20 August 2026, Crisil upgraded NMDC Steel's ₹4,500 crore bank facility from BBB+/Stable to A/Stable. For most of 2025 the rating had sat at BBB+ with a Watch Developing tag. The Watch Developing tag is gone, and the rating now sits two notches higher on the standard scale (BBB+, A-, A). Whether that lowers borrowing costs will depend on lender terms, but it may improve financing flexibility.
| Crisil indicator | FY25 | FY26 |
| Adjusted debt to adjusted net worth | 0.45x | 0.35x |
| Interest coverage | (2.7x) | 3.1x |
| Operating margin (OPBDIT) | Operating loss | About 11% |
Liquidity is rated strong. Cash and bank balances were around ₹800 crore on 31 March 2026, and the ₹2,600 crore fund-based limit ran at about 75% utilisation. Crisil says accruals and existing cash should cover scheduled debt of about ₹450 crore in FY27 and ₹615 crore in FY28, with no major capex planned. It expects interest coverage in the 3 to 4 times range and names a sustained move beyond 4 to 5 times as an upward rating trigger.
Here is the part I find telling. On the day of the upgrade, 21 August, the stock rose 1.29% to ₹40.08. Today it trades at ₹40.27. A two-notch credit upgrade has moved the share price by nineteen paise.
Crisil is balanced about the same picture. It notes that debt protection metrics remain moderate because operations are working-capital intensive, including bill discounting at about 6.5% a year on iron ore bought from NMDC with 90 to 180 days of credit. Total borrowings were ₹5,056.15 crore on 30 June 2026, against about ₹4,600 crore in March, so the next results will show how quickly working capital eases.
5 | The Sovereign Backstop and the Divestment Process |
As of 30 June 2026, the government's stake in NMDC Steel was 60.79%. Under the proposed plan, 50.79% with management control would go to a private strategic buyer, and the balance 10% would be held by NMDC, as Crisil describes it. Expressions of interest have been received, and financial bids have yet to begin.
Until the sale is complete, the Ministry of Steel has mandated NMDC, which Crisil rates AAA/Stable, to provide support to its subsidiary. Crisil treats this as a strength and says any change in the support philosophy is a key rating sensitivity. In simple terms, the plant has a strong parent behind it today and a strategic owner potentially ahead. The credit profile will be reassessed under whatever ownership structure emerges, and the sale remains subject to the bidding process, approvals and final terms.
A little arithmetic helps. At ₹40.27, the market capitalisation is about ₹11,800 crore, so the 50.79% stake being offered is worth about ₹5,990 crore at the market price. That is my calculation of the market-value equivalent of the stake, not an estimate of the sale price. The final value will depend on the bids received, the terms of the transaction and any control premium.
6 | The Demand Backdrop: India Alone Adds 13.8 Million Tonnes |
The World Steel Association's October 2026 outlook, released on 12 October, projects global steel demand flat at 1,722 million tonnes this year, with China down 2%. India is the exception. Demand is forecast to rise 7.9% to 172.4 million tonnes in 2026 and a further 8% to 186.2 million tonnes in 2027, led by infrastructure-led construction, with private real estate demand still robust.
For scale, the gain from 2026 to 2027 alone is 13.8 million tonnes, more than four times the 3 million tonne nameplate of the Nagarnar plant. That is context, not a guarantee. NMDC Steel's share of it will depend on its realisations, product mix and cost efficiency, which is where Crisil sees steady improvement.
7 | Valuation: The Earnings Ladder |
Start with the asset base. The company's net worth was ₹13,228.35 crore on 30 June 2026, so the market capitalisation of about ₹11,800 crore (293.06 crore shares at ₹40.27) is roughly 0.89 times book value. That ratio is my arithmetic.
Now let that market capitalisation meet a ladder of quarterly profit levels. These are simple four-times annualisations. They are not guidance, analyst estimates or forecasts, and they ignore steel-price cycles, tax and raw-material costs.
| Quarterly net profit | Annualised | Implied P/E |
| ₹50.51 crore (Q1FY27 actual) | ₹202 crore | 58x |
| ₹100 crore (illustrative) | ₹400 crore | 29.5x |
| ₹200 crore (illustrative) | ₹800 crore | 14.8x |
| ₹391.91 crore (Q4FY26 actual, peak quarter) | ₹1,568 crore | 7.5x |
The table shows how sensitive the multiple is to durable profitability. It does not by itself prove the shares are undervalued. Q4FY26 shows what the plant can earn at its best, and Q1FY27 shows where margins settled afterwards. If NMDC Steel earned half of Q4FY26's profit in each quarter, about ₹196 crore, annualised profit would be roughly ₹784 crore and the implied P/E about 15x. The next few results will show how much of that range the plant can hold.
CASE FILE: FIVE CHECKPOINTS FOR THE NEXT RESULTS
1. Utilisation: does the plant hold the roughly 89% reached in Q4FY26.
2. Margin: whether the operating margin holds near the 10.9% of Q1FY27 and the 11% of FY26, with the 20.77% of Q4FY26 as the upside mark.
3. Interest coverage and borrowings: coverage moving from 3.1 times towards the 4 times mark that Crisil links to further upgrades, with working capital easing.
4. Melting-shop headroom: any step-up in liquid steel output beyond 24.25 lakh tonnes.
5. Divestment: the move from expressions of interest to financial bids.
| Operations | Utilisation 50% to 80%, about 89% in Q4FY26. HRC output up about 62%. |
| Earnings | PAT from a ₹2,373.78 crore loss to ₹58.72 crore. Q4FY26 at ₹391.91 crore. Q1FY27 at ₹50.51 crore. |
| Credit | Crisil A/Stable. Debt to net worth 0.35x. Interest coverage 3.1x. Cash about ₹800 crore. |
| Ownership | Government backing through NMDC today. A 50.79% strategic sale proposed. |
| Valuation | Market capitalisation about ₹11,800 crore, roughly 0.89x the net worth of ₹13,228.35 crore. |
| Sector | India demand 172.4 Mt in 2026 and 186.2 Mt in 2027 while global demand stays flat. |
Let me put it plainly. A plant that lost ₹2,373.78 crore in FY25 reached about 89% utilisation, earned ₹391.91 crore in one quarter, held a margin near 11% in the next, and won a Crisil upgrade. It trades at ₹40.27, about 0.89 times book value. The question is whether that operating improvement can be sustained long enough for earnings to show up across several quarters.
My reading is that the case rests on three trackable things: utilisation holding near its peak, margins holding near 11% or better, and a divestment process that moves on to financial bids. Together with the currency exposure covered in my earlier note, they decide how quickly earnings catch up with the asset base. Each can be checked in public filings, quarter by quarter, which is why this is a thesis to follow with numbers and not with slogans.
Sources: NMDC Steel Ltd FY26 results and Q1FY27 results (declared 14 August 2026) as filed with the exchanges; Crisil Ratings rationale dated 20 August 2026; NMDC Steel disclosure on HR coil production (June 2026); World Steel Association Short Range Outlook, 12 October 2026; market data on the 21 August 2026 price move. Implied P/E, price-to-book, per-share earnings, depreciation, stake value and tonnage comparisons are SumanSpeaks arithmetic on the reported figures.
For personalized stock market insights and guidance, feel free to reach out at: sumanm2007s@gmail.com | suman2005s@rediffmail.com
Disclaimer: This article is published by SumanSpeaks for general informational and educational purposes only. The author has over 25 years of capital markets experience. This is not a recommendation to buy, sell, or hold any security. Steel realisations, raw-material costs, capacity utilisation, working capital and the timing and terms of the government's divestment can all move results and valuation. The earnings ladder is illustrative arithmetic and not a forecast. All data is sourced from public exchange filings, regulatory orders, and credible financial media. Readers must conduct independent due diligence before making any investment decision.
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