NMDC may settle around Rs 300-320 post issue: SP Tulsian

16136 Investors following NMDC. Share this News with them.

0

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

NMDC may settle around Rs 300-320 post issue: SP Tulsian

The government has fixed the National Minerals Development Corporation (NMDC) follow-on public offer (FPO) price band at Rs 300 to 350 per share. In an exclusive interview with CNBC-TV18, SP Tulsian of sptulsian.com, talks about the issue and gives his outlook going forward.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS NMDC expects 50 million tonne mining output in FY11 NMDC FPO price band at Rs 300-350/sh; stk dips 6% Even at discount, NMDC FPO looks expensive to global peers NMDC BSE | NSE 31/05/12 Are Mutual Funds betting on NMDC?

The government has fixed the National Minerals Development Corporation (NMDC) follow-on public offer (FPO) price band at Rs 300 to 350 per share. This translates into a discount of 12.7% to 25.2% to the current market price. The market was expecting a mid-point or a lower price band of Rs 300. The issue opens from March 10-12.

The government will raise Rs 9,967 to 11,682.5 crore for this 8.38% stake sale and it's holding will go down to 90% from 98.4%.

In an exclusive interview with CNBC-TV18, SP Tulsian of sptulsian.com, talks about the issue and gives his outlook going forward.

Here is a verbatim transcript of the exclusive interview with SP Tulsian on CNBC-TV18. Also watch the accompanying video.

Q: Pricing of NMDC, aggressive, conservative or somewhere in between?

A: I have two views on this. I am happy to see a price of Rs 300 on the board that at least it is Rs 300 to Rs 350. But if I read the mind of the government, I see greed, fear and confusion on part of the government. I have been holding that Rs 300 is the maximum valuation at which the government should go because the kind of fall which we will see post increase of float. Though we are talking of a public float of 1.5% for the stock, but if you ask me it is just a 0.25% because 1.25% of the stake is held by the insurance companies and they have just been riding on the illusionary market cap of this company. So post the increase in the float to about 9-10% or 10%, if I include the insurance companies also, the price should settle at around Rs 300-310-320. So in that event it would have been better. Even now I feel that government will be forced to discover a price of Rs 300 only.

Price band of Rs 300 to Rs 350, firstly, there should not have been a range of Rs 50 because that definitely creates a confusion in the minds of the retail investors, specially when they did not gave any response to the earlier two issues. Second, this is very thinly traded stock. Third, the valuations based on pure fundamentals does not justify beyond Rs 300. So if the government is likely to discover the price of Rs 300, it would have been better if they would set a price band of Rs 280-300, which would have enthused the retail investor at least to come to the market. So this is my overall mix reaction on this price band.

Q: So at Rs 300 if you had to go about plotting the valuations of this company, how would you set it? How does it compare against its peers, should it be given a premium to get that Rs 300 price?

A: If I take the earnings for FY10, the profitability or the topline, bottomline is on a declining trend. If I go by the nine months performance the company NMDC has posted earnings per share (EPS) of Rs 6, but Q4 is likely to be quite robust. Even if I presume that they will end FY10 with an EPS of Rs 10 in that even their book value will be about Rs 39 and since I say that Rs 300 is a reasonable price where the book could get discovered that means I am giving a PE multiple of 30 and price to book of 7.5.

If I compare this company with Sesa Goa , Sesa Goa is likely to post an EPS of about Rs 26-27 for FY10 with a book value of close to about Rs 85 and if I translate that into PE and price to book it gives me a PE of about 16-17 times and price to book of about 5-5.5 times. So definitely NMDC deserves better valuations because 92% of their domestic contracts will be going for renewal in next one year while all the 100% of the overseas contracts will go for renewal and they go for a block of five years. So even if presume EPS of 14-15, I am taking a PE multiple of 20 that is on the forward earnings for FY11 with a price to book in that case falling at about maybe 7 times. If you take an enterprise value, the marketcap will be at about Rs 120,000 crore with enterprise value of about Rs 100,000 crore since the company is having cash balance of 20,000 crore, so I am knocking that off from the market cap to have a net enterprise value, then also comparing with, I am not going by the global peers, the comparison with the global peers purely focusing on the valuations with Sesa Goa because the net profit margin of NMDC is close to about 47% while Sesa Goa is at 42%. So by going all the standards, definitely NMDC deserves a better valuation than Sesa. But I do not think that it can be higher by about 20% then what you will be having the comparable earning potential for Sesa vis-à-vis NMDC.