Recent Price Movement and Market Performance
The stock has experienced a notable decline over the past week, dropping 8.72%, significantly underperforming the Sensex which fell by only 2.55% in the same period. Year-to-date, NMDC Steel Ltd’s shares have declined by 5.67%, again lagging behind the broader market’s 1.93% fall. Despite a modest positive return of 0.17% over the last year, this pales in comparison to the Sensex’s 7.67% gain, highlighting the stock’s relative weakness.
On the day in question, the stock underperformed its sector by 1.52%, touching an intraday low of ₹41.58, down 2.92%. The weighted average price indicated that a larger volume of shares traded closer to the day’s low, signalling selling pressure. Additionally, the stock has been on a consecutive two-day decline, losing 9.22% in that span, which suggests sustained bearish sentiment among investors.
Investor Participation and Liquidity
Interestingly, investor participation has been rising, with delivery volumes on 08 Jan increasing by 30.9% compared to the five-day average, reaching 35.24 lakh shares. This heightened activity, coupled with sufficient liquidity to support trades of approximately ₹0.55 crore, indicates that the stock remains actively traded despite the recent price weakness.
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Fundamental Strength and Profitability Challenges
Despite the company reporting positive results for three consecutive quarters, including a quarterly net sales peak of ₹3,389.90 crore, the underlying fundamentals remain a concern. The average Return on Capital Employed (ROCE) stands at 0%, reflecting weak efficiency in generating returns from capital investments. Over the past five years, operating profit has declined at an annualised rate of 37.79%, signalling deteriorating operational performance.
Moreover, the company’s ability to service debt is limited, with a high Debt to EBITDA ratio of -1.00 times, indicating negative earnings before interest, taxes, depreciation, and amortisation. This negative EBITDA status increases the risk profile of the stock, as it suggests the company is not generating sufficient operational cash flow to cover its debt obligations.
Valuation and Risk Considerations
NMDC Steel Ltd’s stock is trading at valuations that are considered risky relative to its historical averages. Although the stock has managed a slight positive return over the last year, its profits have fallen sharply by 52%, undermining investor confidence. The high institutional holding of 20.47% indicates that knowledgeable investors are involved, yet the persistent decline in profitability and weak long-term growth prospects have likely contributed to the recent selling pressure.
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Conclusion
The decline in NMDC Steel Ltd’s share price on 09-Jan reflects a combination of weak long-term fundamentals, including poor profitability and negative EBITDA, alongside recent underperformance relative to the market and sector. While the company has shown some positive quarterly sales momentum, the persistent erosion of operating profits and high debt levels have weighed heavily on investor sentiment. The stock’s recent trading pattern, with increased volume near lows and consecutive days of losses, further underscores the cautious stance adopted by the market. Investors should carefully weigh these factors against the company’s prospects before considering exposure to NMDC Steel Ltd.
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