The December quarter results paint a concerning picture for India's state-owned steel producer. Whilst the company achieved a 41.90% year-on-year revenue growth to ₹3,007.69 crores, operational inefficiencies and elevated interest costs dragged the company back into losses. The sequential 11.27% revenue decline from Q2 FY26's ₹3,389.90 crores, coupled with margin compression, signals challenges in sustaining the momentum witnessed in the previous two quarters.
With a market capitalisation of ₹12,599 crores and trading at a price-to-book value of 0.94x, NMDC Steel remains significantly undervalued relative to its book value of ₹44.75 per share. However, the persistent losses and weak profitability metrics continue to weigh on investor sentiment, as evidenced by the stock's 40.91% decline over the past two years, substantially underperforming the Sensex's 16.17% gain during the same period.
Financial Performance: Revenue Growth Masks Deepening Operational Struggles
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 3,007.69 | 3,389.90 | 3,365.22 | 2,838.25 | 2,119.54 | 1,522.35 |
| QoQ Growth | -11.27% | +0.73% | +18.57% | +33.91% | +39.23% | -24.74% |
| YoY Growth | +41.90% | +122.68% | +66.36% | — | — | — |
| Net Profit (₹ Cr) | -243.97 | -114.78 | 25.56 | -473.39 | -757.78 | -595.37 |
| Operating Margin % | 3.24% | 6.11% | 12.11% | -10.24% | -30.95% | -28.94% |
| PAT Margin % | -8.11% | -3.39% | 0.76% | -16.68% | -35.75% | -39.11% |
The quarterly trend reveals a company struggling to translate top-line growth into sustainable profitability. In Q3 FY26, net sales of ₹3,007.69 crores represented a 41.90% year-on-year improvement, demonstrating the company's ability to scale operations and capture market share in India's growing steel sector. However, the sequential 11.27% decline from Q2 FY26 raises questions about demand sustainability and pricing power.
Operating margins compressed sharply to 3.24% in Q3 FY26 from 6.11% in the previous quarter, reflecting deteriorating cost management. The operating profit before depreciation, interest, tax, and other income fell to ₹97.52 crores from ₹207.27 crores quarter-on-quarter, a 52.95% decline despite only an 11.27% revenue drop. This disproportionate margin erosion suggests significant operational inefficiencies or adverse input cost movements.
The profit after tax margin of -8.11% in Q3 FY26, whilst an improvement from the -35.75% recorded in Q3 FY25, remains deeply negative. Interest costs of ₹128.11 crores and depreciation charges of ₹251.95 crores consumed the entire operating profit, pushing the company into pre-tax losses of ₹263.81 crores. The tax credit of ₹19.84 crores provided marginal relief, but was insufficient to prevent the net loss of ₹243.97 crores.
On a nine-month basis for FY26 (April-December 2025), the company generated net sales of ₹9,762.81 crores, reflecting robust 75.67% growth over the same period in FY25. However, the cumulative net loss for the nine-month period stands at ₹333.19 crores, highlighting the structural profitability challenges that persist despite volume growth.
Operational Challenges: Fixed Costs and Leverage Undermining Profitability
NMDC Steel's operational difficulties stem from a combination of elevated fixed costs, high leverage, and insufficient operating leverage. The company's interest burden of ₹128.11 crores in Q3 FY26 consumed the entire operating profit of ₹97.52 crores, leaving no cushion for depreciation or taxes. With long-term debt standing at ₹3,289.31 crores as of March 2025 and a debt-to-equity ratio of 0.35, the interest coverage remains critically weak.
The depreciation charge of ₹251.95 crores in Q3 FY26 reflects the capital-intensive nature of the steel business. Fixed assets stood at ₹20,088.20 crores as of March 2025, representing the company's substantial investment in manufacturing infrastructure. However, the inability to generate sufficient operating cash flows to service both interest and depreciation indicates underutilisation of capacity or pricing pressures.
Employee costs of ₹51.95 crores in Q3 FY26 jumped sharply from ₹22.04 crores in Q2 FY26, representing a 135.75% quarter-on-quarter increase. This spike warrants scrutiny, as it suggests either one-time provisions or significant workforce expansion. For a company struggling with profitability, such cost increases are particularly concerning.
Critical Profitability Concerns
Weak Return on Capital Employed: The company's average ROCE stands at -12.49%, indicating that the business is destroying shareholder value rather than creating it. The latest ROCE of -7.68% shows marginal improvement but remains deeply negative.
Interest Coverage Crisis: With an average EBIT to interest ratio of -3.74x, the company cannot service its debt obligations from operating profits. This structural weakness poses refinancing risks and limits strategic flexibility.
Margin Volatility: Operating margins have swung wildly from -30.95% in Q3 FY25 to +12.11% in Q1 FY26, back down to 3.24% in Q3 FY26, indicating lack of operational stability and pricing power.
The balance sheet reveals further stress. Current liabilities of ₹9,903.32 crores as of March 2025 include trade payables of ₹4,831.72 crores, nearly double the ₹2,502.71 crores recorded in March 2024. This 93.04% increase in trade payables suggests potential working capital stress and delayed payments to suppliers, which could impact operational continuity.
The Steel Sector Context: Cyclical Headwinds and Competitive Pressures
NMDC Steel operates in India's highly competitive ferrous metals sector, characterised by cyclical demand patterns, volatile raw material costs, and intense pricing pressures. The company's 41.90% year-on-year revenue growth in Q3 FY26 reflects the broader recovery in steel demand following the subdued FY25, but the sequential decline of 11.27% suggests moderating momentum.
The inventory turnover ratio of 4.00 times for the half-year period ending September 2025 represents the highest level in recent periods, indicating improved working capital efficiency. This suggests the company is managing to convert inventory into sales more rapidly, though the profitability on those sales remains inadequate.
Steel prices in India have faced pressure from Chinese exports and domestic overcapacity, limiting pricing power for producers. NMDC Steel's inability to sustain the 12.11% operating margin achieved in Q1 FY26 suggests the company lacks the cost leadership or product differentiation necessary to maintain profitability during softer pricing environments.
Turnaround Timeline Uncertain
The company's financial trend has improved to "Positive" as of December 2025, up from "Flat" in March 2024. However, this improvement is based on revenue growth rather than profitability. The key question for investors is whether NMDC Steel can achieve sustainable positive earnings before its balance sheet constraints become binding. With cumulative losses of ₹2,373 crores in FY25 and ongoing losses in FY26, the path to profitability remains unclear.
Industry Leadership: How NMDC Steel Compares to Peers
| Company | P/E Ratio (TTM) | P/BV Ratio | Dividend Yield | Market Cap (₹ Cr) |
|---|---|---|---|---|
| NMDC Steel | NA (Loss Making) | 0.94x | — | 12,599 |
| Jindal Stainless | 22.50x | 3.68x | 0.50% | — |
| SAIL | 20.80x | 1.09x | 1.04% | — |
| Lloyds Metals | 35.17x | 8.24x | 0.08% | — |
| KIOCL | NA (Loss Making) | 13.23x | — | — |
| Sarda Energy | 16.66x | 2.53x | 0.30% | — |
NMDC Steel's peer comparison reveals its significant underperformance relative to industry standards. As a loss-making entity, the company cannot be valued on earnings multiples, unlike profitable peers such as Jindal Stainless (22.50x P/E), SAIL (20.80x P/E), and Lloyds Metals (35.17x P/E). This earnings deficit represents the primary valuation constraint.
The price-to-book ratio of 0.94x suggests the market is valuing NMDC Steel below its book value of ₹44.75 per share, reflecting scepticism about the company's ability to generate returns on its ₹13,114.48 crore shareholder equity base. In contrast, profitable peers trade at substantial premiums to book value, with Lloyds Metals commanding an 8.24x P/BV multiple and KIOCL at 13.23x despite also being loss-making.
The absence of dividend payments from NMDC Steel, compared to yields of 0.50% to 1.04% from peers, further underscores the company's cash generation challenges. Until the company achieves consistent profitability, dividend payments remain a distant prospect.
Valuation Analysis: Below Book Value but Profitability Concerns Persist
NMDC Steel trades at ₹41.64 per share, representing a 0.94x price-to-book multiple against a book value of ₹44.75 per share. This 6% discount to book value might appear attractive on surface, but the valuation must be contextualised against the company's persistent losses and weak return on equity.
The company's enterprise value to EBITDA multiple of -50.36x and EV to EBIT of -12.41x are both negative due to the negative earnings, rendering these traditional valuation metrics meaningless. The EV to sales ratio of 1.43x provides some perspective, suggesting the market values the company at approximately 1.4 times its annual revenue run rate.
With the stock trading 16.08% below its 52-week high of ₹49.62 and 46.88% above its 52-week low of ₹28.35, the current price reflects a middle ground between optimism and pessimism. However, the overall valuation grade of "Risky" assigned by proprietary assessment models accurately captures the elevated uncertainty surrounding future earnings potential.
The proprietary Mojo score of 29 out of 100 places NMDC Steel firmly in "Strong Sell" territory, reflecting the combination of weak fundamentals, risky valuation, and below-average quality metrics. This score has remained in the "Sell" to "Strong Sell" range since October 2025, indicating persistent concerns about the investment case.
Shareholding: Stable Promoter Base but Limited Institutional Conviction
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 60.79% | 60.79% | 60.79% | 60.79% | 0.00% |
| FII | 4.80% | 5.13% | 4.67% | 4.60% | -0.33% |
| Mutual Funds | 0.71% | 0.38% | 0.40% | 0.50% | +0.33% |
| Insurance | 14.34% | 14.34% | 14.87% | 14.84% | 0.00% |
| Other DII | 0.63% | 0.62% | 0.63% | 0.69% | +0.01% |
| Non-Institutional | 18.72% | 18.74% | 18.64% | 18.58% | -0.02% |
The shareholding pattern reveals a stable ownership structure dominated by the Government of India through the President of India holding 60.79% promoter stake. This unchanged promoter holding across all recent quarters provides stability and ensures government support for the strategic asset, though it also limits free float liquidity.
Foreign institutional investor holdings declined marginally to 4.80% in December 2025 from 5.13% in September 2025, suggesting some profit-booking or reallocation by international investors. The modest 0.33% reduction is not alarming but indicates lack of strong conviction from this investor category.
Mutual fund holdings increased to 0.71% from 0.38% quarter-on-quarter, representing an 86.84% relative increase. Whilst the absolute holding remains minimal, this uptick suggests some domestic fund managers are taking contrarian positions, possibly betting on a turnaround. However, with only 18 mutual fund schemes holding positions, institutional conviction remains limited.
Insurance companies hold a substantial 14.34% stake, unchanged from the previous quarter. This stable institutional holding provides some comfort, though the lack of incremental buying suggests these are likely long-term strategic holdings rather than active accumulation based on improving fundamentals.
Stock Performance: Significant Underperformance Across Timeframes
| Period | NMDC Steel Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.22% | 2.30% | -2.08% |
| 1 Month | -8.96% | -2.36% | -6.60% |
| 3 Months | -8.56% | -0.29% | -8.27% |
| 6 Months | 14.77% | 3.89% | +10.88% |
| YTD (2026) | -5.92% | -1.74% | -4.18% |
| 1 Year | 4.89% | 8.49% | -3.60% |
| 2 Years | -40.91% | 16.17% | -57.08% |
NMDC Steel's stock performance reveals a pattern of consistent underperformance relative to both the Sensex benchmark and the broader ferrous metals sector. Over the past year, the stock delivered a modest 4.89% return, significantly trailing the Sensex's 8.49% gain and underperforming the ferrous metals sector's 27.97% return by 23.08 percentage points.
The two-year performance is particularly concerning, with the stock declining 40.91% whilst the Sensex gained 16.17%, resulting in a negative alpha of 57.08 percentage points. This substantial underperformance reflects the market's loss of confidence in the company's ability to achieve profitability and generate shareholder returns.
Recent momentum has been negative, with the stock down 8.96% over the past month and 8.56% over three months, both periods of underperformance relative to the benchmark. The year-to-date decline of 5.92% in 2026 suggests the negative sentiment persists into the new calendar year.
The six-month return of 14.77%, outperforming the Sensex by 10.88 percentage points, represents the sole bright spot. This period coincided with the company's brief return to profitability in Q1 FY26, suggesting the market does respond positively to operational improvements. However, the subsequent losses in Q3 FY26 have reversed much of this gain.
Investment Thesis: Limited Upside Despite Valuation Discount
The investment case for NMDC Steel rests on three primary pillars: the government backing as a Central Public Sector Undertaking, the below-book-value valuation, and the potential for operational turnaround in India's growing steel sector. However, each of these positives is counterbalanced by significant concerns that limit the investment appeal.
The government ownership of 60.79% provides strategic stability and reduces the risk of financial distress, as the Ministry of Steel is unlikely to allow a complete failure of this asset. This implicit government support represents a form of downside protection, though it does not guarantee profitability improvements or shareholder value creation.
The below-book-value trading at 0.94x P/BV creates a margin of safety in theory, but only if the book value represents realisable economic value. With the company generating negative returns on equity and capital employed, the book value may overstate the true economic worth of the assets. The fixed asset base of ₹20,088.20 crores appears underutilised given the revenue generation and profitability levels.
The quality grade of "Below Average" accurately reflects the company's long-term financial performance. Whilst the five-year sales growth of 178.90% demonstrates the ability to scale operations, the five-year EBIT growth of -37.79% shows that this growth has not translated into improved profitability. The average ROCE of -12.49% indicates persistent value destruction rather than creation.
The technical picture offers little support, with the stock in a "Sideways" trend as of February 03, 2026. Trading below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages indicates weakness across all timeframes. The MACD showing "Mildly Bearish" signals on both weekly and monthly charts suggests continued downward pressure.
Key Strengths & Risk Factors
Key Strengths ✓
- Government Backing: 60.79% promoter holding by Government of India provides strategic stability and implicit support during challenging periods
- Revenue Growth Momentum: 41.90% YoY revenue growth in Q3 FY26 and 75.67% growth for nine months FY26 demonstrates market share gains
- Below Book Value: Trading at 0.94x P/BV offers potential upside if operational improvements materialise
- Improving Trend: Financial trend upgraded to "Positive" from "Flat", indicating sequential improvements in operational metrics
- Working Capital Efficiency: Inventory turnover ratio of 4.00x for H1 FY26 represents highest level, suggesting better asset utilisation
- No Promoter Pledging: Zero pledged shares eliminates concerns about forced selling or financial stress at promoter level
- Strategic Sector: Operates in ferrous metals, a critical sector for India's infrastructure and manufacturing growth
Key Concerns ⚠
- Persistent Losses: Net loss of ₹243.97 crores in Q3 FY26 after brief profitability in Q1 FY26, with cumulative FY25 loss of ₹2,373 crores
- Negative ROCE: Average ROCE of -12.49% and latest ROCE of -7.68% indicate value destruction and poor capital allocation
- Weak Interest Coverage: EBIT to interest ratio of -3.74x means operating profits cannot service debt obligations
- Margin Volatility: Operating margins swinging from -30.95% to +12.11% to 3.24% across quarters indicates lack of pricing power and operational stability
- High Leverage Impact: Interest costs of ₹128.11 crores and depreciation of ₹251.95 crores consume entire operating profit
- Working Capital Stress: Trade payables increased 93.04% to ₹4,831.72 crores, suggesting potential supplier payment delays
- Limited Institutional Support: Only 0.71% mutual fund holding and declining 4.80% FII stake indicate lack of conviction
- Underperformance: 40.91% decline over two years vs Sensex's 16.17% gain, with 57.08% negative alpha
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- Sustained Revenue Growth: Ability to maintain 40%+ YoY growth trajectory into Q4 FY26 and beyond
- Margin Stabilisation: Achieving and sustaining operating margins above 8-10% consistently for multiple quarters
- Path to Profitability: Returning to positive PAT and maintaining profitability for at least two consecutive quarters
- Debt Reduction: Material reduction in long-term debt from ₹3,289.31 crores to improve interest coverage
- Capacity Utilisation: Improved asset turnover and sales to capital employed ratios indicating better utilisation
Red Flags to Monitor
- Continued Losses: Another quarter of losses in Q4 FY26 would signal structural rather than cyclical challenges
- Margin Compression: Operating margins falling below 3% would indicate severe pricing or cost pressures
- Working Capital Deterioration: Further increase in trade payables or reduction in inventory turnover
- Institutional Exit: Material reduction in insurance or FII holdings would signal loss of confidence
- Debt Refinancing Needs: Any requirement for additional debt to fund operations or service existing obligations
The forward outlook for NMDC Steel remains clouded by the persistent profitability challenges. Whilst the company has demonstrated the ability to grow revenues substantially, the inability to translate that growth into sustainable positive earnings raises questions about the business model's viability at current cost structures.
The steel sector's cyclical nature means that favourable demand conditions could provide tailwinds, but NMDC Steel's cost base appears too elevated to benefit meaningfully from sector upswings. The company needs to demonstrate at least three consecutive quarters of positive earnings and improving return ratios before investors can gain confidence in a sustainable turnaround.
The Verdict: Avoid Until Profitability Demonstrated
Score: 29/100
For Fresh Investors: Avoid initiating positions. The company's persistent losses, negative return on capital employed of -12.49%, and weak interest coverage of -3.74x present significant risks. Whilst the below-book-value trading at 0.94x P/BV may appear attractive, the negative earnings trajectory suggests the book value may overstate economic worth. Wait for at least two consecutive quarters of positive earnings and margin stabilisation above 8% before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions. The Q3 FY26 results represent a disappointing reversal after the brief Q1 FY26 profitability, indicating that operational improvements are not yet sustainable. The two-year underperformance of 40.91% versus the Sensex's 16.17% gain, resulting in a negative alpha of 57.08%, demonstrates the opportunity cost of holding this investment. Government backing provides some downside protection, but does not guarantee value creation.
Fair Value Estimate: ₹35-38 (12-16% downside from current ₹41.64), based on 0.80-0.85x P/BV multiple reflecting persistent negative earnings and weak return ratios. Any re-rating requires sustained profitability and ROCE improvement above cost of capital.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
