Global iron ore prices have tumbled in the last two months, but this may have a limited impact on India's largest ore producer -NMDC. The recent correction of 11% in the last one month, factors in most of the negatives and the company's stock may not see much of a downside.

There are good reasons for this. Unlike global iron ore prices, domestic ore prices may not see a major decline as domestic supply continues to remain tight, given that the ban is still in force in Goa. In Karnataka, the ramp-up in production has been very slow after the lifting of the mining ban in the state.

Besides, mining activities in Orissa have been declining due to regulatory restrictions and environmental clearance issues. Domestic iron ore production has declined by around 11% CAGR from FY09-FY13. However, consumption is on the rise.

Due to all this, the correlation between global and domestic prices has reduced significantly over the last three years.

NMDCBSE 2.10 % has remained free of all regulatory issues, as it has been compliant with the requisite norms. Further, the company is increasing around 25% of its capacity in FY15. Exports represent only 10-12% of the company's total sales making its earnings less vulnerable to volatility in global price movements.

While domestic iron ore supply is likely to remain constrained, demand is likely to increase owing to a 50% increase in steel manufacturing capacities from FY14-FY16. Besides, the average capacity utilization of the Indian steel industry has remained low due to low availability of coal and natural gas. Improvement in fuel availability going ahead could improve iron demand.

Another booster would be improvement in logistics. The slurry pipelines (267 km, 8mtpa) from the company's Chattisgarh mines to Essar's Vizag steel plant are going re-start. Before the disruption in 2011, these pipelines accounted over one-fifth of the company's total ore transportation.

Leaving aside these macro developments, the company's financials and balance sheet continues to remain strong. In the latest December quarter, NMDC reported year-on-year sales growth of 38%, after a decline in sales in the first half of FY14.

Its earnings in the December quarter grew by 21% against a 19% fall in earnings in the first half of FY14. Going ahead, the earnings will be driven by a rise in volumes. Another positive is the cash on its balance sheet, which is almost 44% of its market capitalisation. Given all this, the NMDC stock, which is trading at a price to book value of 2.1, offers value.

The only risk the company faces is the delay in pick up of domestic steel demand after the polls as anticipated by the street.