Even at discount, NMDC FPO looks expensive to global peers

417 Investors following NMDC. Share this News with them.

0

Like this story, share it with millions of investors on M3

Even at discount, NMDC FPO looks expensive to global peers

The government has fixed the price band for the NMDC follow-on public offer at Rs 300-350 per share, at a discount of 12.9-25.3% to the current market price. Retail investors will get a further 5% discount in the issue.

Post your opinion here

 

0

Tweet

Share on Tumblr

The government has fixed the price band for the NMDC follow-on public offer at Rs 300-350 per share, at a discount of 12.9-25.3% to the current market price, reports CNBC-TV18's Sajeet Manghat. Retail investors will get a further 5% discount in the issue.

The government is understood to have fixed a price band of Rs 300-350 for the follow-on public offer of state-owned mining giant NMDC. It is priced at a discount of 14.8-25.3%.

The Empowered Group of Ministers met today fixed the price for the state-owned company. At this price range, the company is likely to mop up about Rs 11,700 crore, steel ministry sources said.

From a valuation point of view, the FPO would be fairly priced compared to its global peers though it would be at a premium to many of them. NMDC is one of the largest iron ore producers in India. The fact that it has the lowest cost of production for iron ore would mean that it would get a premium to some of its domestic peers as well as some international peers.

Valuation is close to around 22-25 times assuming the FY11 EPS to be around Rs 14 per share. NMDC is expected to come out with new price norms by the next fiscal which is expected to increase iron ore prices by nearly 50%. If that happens, the EPS would be much higher and that would mean that we are looking at a PE multiple of 17-22 times for FY11, which is a pretty fair valuation for NMDC going forward.

On an EV To EBITDA basis, it is quite comparable to many other peers though it is at a slight premium to many of them. Analysts however say that since NMDC is one of the largest players in the iron ore segment it will command that premium. This is good news for all retail investors as retail is going to get a 5% discount to the price which would be determined by the price band of Rs 300 -350 per share.

The government has taken the sensitivities of institutional investors into consideration. Institutional investors were talking about the current market price of NMDC being very high. Hence the government has priced it at a point which will give them something to go for or some pop on the listing would be there for retail investors as well if they go ahead and invest in the FPO.

The NMDC issue will open on March 10 and close on March 12. The country's largest iron ore producer is coming out with its public issue of over 33 crore shares of face value of Re 1 each. The government is slated to divest 8.38% stake in the public sector undertaking.

NMDC share closed at Rs 400.6, down 3.35% from Friday's closing, on Bombay Stock Exchange (BSE).