NMDC is among the three (Kudremukh Iron Ore and Manganese Ore are the other two) public sector undertakings identified by the government for divestment. The government holds about 98.38% in NMDC and has 1.62% market free float which translates to about 6.4 crore shares.

If the government were to disinvest about 10%, the free float would increase from 6 crore shares to about 46 crore shares and that will help lead to a better price discovery.

Here is a verbatim transcript of Gautam Broker’s comments on CNBC-TV18. Also watch the accompanying video.

The government holds about 98.38% in NMDC. There is just 1.62% free float in the market and that translates to about Rs 6.4 crore shares. So, in absolute number of shares, the shares may look high but the total share outstanding is about 400 crore shares.

So if the government is to disinvest about 10% the free float would increase from 6 crore shares to about 46 crore shares and so that should help lead to a better price discovery because if you look at the valuation the EPS of NMDC in FY09 was about Rs 11.03 and the current market price is about Rs 385, so that translates to PE of 35 times and the stock has moved 10% today, so the PE looks bit higher.

The PAT the company registered profit of about Rs 4,300 crore, they have about Rs 12,000 crore of reserves, so that should also give some comfort to valuations but the valuations are looking a bit stretched. So if the government were to disinvest the price would be perhaps at a discount to the current market price.

The government has been trying to boost up liquidity into the stock by doing a stock split, they split into a face value of 1 from 10 earlier and also give a bonus of 2 for every one share, and those measures were also aimed at boosting the total free float.

This disinvestment should help the government garner about Rs 15,000 crore for itself and also help lead to a better price discovery in NMDC.