NMDC looks expensive compared to global peers: Nirmal Bang

NMDC BSE | NSE 10/02/12 Are Mutual Funds betting on NMDC?

Nirmal Bang has come out with a research report on NMDC 's FPO. The broking firm says, though the outlook for NMDC looks quite attractive, the valuation seems to be costly.

The 33,22,43,200 equity shares follow-on public offer of NMDC will close on March 12. The price band is at Rs 300-350 per share and the offer shall constitute upto 8.38% of the post offer paid-up equity share capital of the company.

The report says, "We are positive on the business model of NMDC primarily, being a low cost manufacturer, huge iron ore reserves, high fe content of iron ore, diversification of its business going forward and future growth prospects. The company has zero debt, huge cash position on the books, excellent management and a near monopoly in the most important mineral needed for India."

"We have valued the company on various parameters though NPV is the most appropriate method to value any mining company. We have valued NMDC on the NPV approach where we have assumed an increase of iron ore prices by 50% in FY11E and thereafter an increase of 5% in the iron ore prices for calculating NPV. The per share value of NMDC based on NPV comes to Rs. 261 per share," according to Nirmal Bang.

The report also says, "Even if one looks at other relevant valuation metrics such as EV/EBIDTA, NMDC's stock appears very expensive as compared to its global peers. While its EV/EBIDTA stands at around 31x, that of global mining majors are around 6-7x. At the lower band of Rs 300, the stock is available at the PE of 20.32x and at the upper band of Rs. 350, the stock is available at a PE of 23.71x, based on its FY11E earnings of EPS of Rs. 14.8 per share which looks expensive. Though the outlook for NMDC looks quite attractive, the valuation seems to be costly."

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To read the full report click on the attachment