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FPO Analysis – NMDC – Invest below Rs 300

Posted by admin
March 7, 2010


NMDC plans to offer for sale 33.2 crore shares of face value of Re 1 in it’s FPO, at a price band to be announced on 9th March 2010. This represents 8.38 per cent of the outstanding shares of the company. NMDC FPO is open from 10th March to 12th March.

You should consider bidding in the follow-on public offering from National Minerals Development Corporation (NMDC) only if it is priced at a steep discount to the current market price.

The company’s impressive operating profit margins of 70-80 per cent, its zero debt status and cash of over Rs 12,000 crore on its books (as of December 2009), make the stock a preferred exposure in the listed mining space.

However, it is the stiff valuation that the stock is trading at which is a cause for concern for investors. At the current market price of Rs 416, the stock discounts its trailing 12-month earnings by about 48 times. While NMDC’s Indian peer Sesa Goa trades at 19 times, much larger global competitors such as Rio Tinto, Vale and BHP Billion trade at 18-23 times.

At present, NMDC charges around Rs 2,600 per tonne of iron ore. If its clients resort to importing the same quality ore from Australia or Brazil, costs may range between Rs 3,200 and Rs 4,000 a tonne.

With the ongoing expansion in the steel industry and a bulk of customer contracts soon due for renewal, NMDC may witness strong revenue growth of 25-30 per cent in the next couple of years

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Comments
Pingback by NMDC FPO Priced at Rs 300-350 a share on March 9, 2010 @ 3:59 pm

[...] government on Tuesday said it has fixed the price band of NMDC FPO at Rs 300-350 a share, a hefty discount of 25 per cent from its last closing of Rs 400 a piece on [...]

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