NMDC is entering the capital market on 10th March, 2010 with a "Further Public Offer" of 33.22 crore equity shares of Re. 1 each, for which the price band by EGoM will be announced on 8th March,10. Though the shares of the company are listed on BSE and NSE, they are listed without the company having ever come out with an IPO. So infact, the present one is an IPO and not FPO, as called now.
Share is presently ruling at Rs. 420 with its 52 week high being Rs. 572 touched on
For FY09, the total income of the company was at Rs. 8,575 crores with PAT at Rs. 4,372 crores, resulting in an EPS of Rs. 11. Book value per share, as at
As against this, Sesa Goa, a comparable player has posted sales of Rs. 3,440 crores in 9 months ending Dec. 09, with PAT at Rs. 1,416 crores, resulting in an EPS of Rs. 17.25 for the period, on face value of Re. 1. Book value as at
This is mainly due to low float of NMDC, which presently is at 0.23% with the public. Institutional investors holding about 1.40% are not selling the stock, despite knowing fully well, that it is overpriced. If they start offloading even a part of their holding, share price can correct substantially. So, the institutions are playing on the psyche of "hold" because that allows them to have a halo of unrealistic valuations around them, which is ultimately raising the NAV of such insurance companies. Hold to hold the gains - that is what it is all about!
Even if we consider the fact that NMDC enters into long term contract for a term of five years with 96% of its domestic contracts, due to expire in 2010 and 100% of export contracts, due to expire in 2011, it will still remain in a disadvantageous position, as next renewal will happen at the beginning of an upturn in the commodity cycle. Also, 74% of its turnover comes from 2 players, viz. Rashtriya Ispat (37%) and Essar Steel (37%) which is also seen as negative, as in the event, these customers go for their own captive iron ore mines.
Realising all these, Govt. has decided not to go via French Auction route, as QIBs would not have been too enthused to bid aggressively. Infact, French Auction does not work well, in case of low float stocks like NMDC, Hindustan Copper and MMTC. And which is why, the bait of a 5% discount to retail investors is offered. Govt. will try its level best to attract retail investors in this issue, which were conspicuous by their absence in NTPC and REC FPO.
NMDC will be a big test for the Govt. in fixing the price band, which in our view should be between 275 to 300.