NMDC valuations look stretched above Rs 300: Udayan

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NMDC valuations look stretched above Rs 300: Udayan

The follow-on public offer of NMDC opened for subscriptions today. Udayan Mukherjee, Managing Editor, CNBC-TV18 says, it is a good asset, but anything more than Rs 300 is a bit of a stretch. “I think it is a great company. But above Rs 300, I don’t think there is any margin of safety at all.”

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS NMDC follow-on offer opens today Is Rs 300-350/sh price band for NMDC FPO expensive? NMDC may settle around Rs 300-320 post issue: SP Tulsian NMDC BSE | NSE 30/05/12 Are Mutual Funds betting on NMDC?

The follow-on public offer of NMDC opened for subscriptions today. The offer comprises a net offer to the public of 330,500,000 equity shares of face value Re 1 each and a reservation of 1,743,200 equity shares for purchase by eligible employees. The offer will close on March 12, 2010. The price band for the issue is fixed at Rs 300-350 per share.

Udayan Mukherjee, Managing Editor, CNBC-TV18 says, it is a good asset, but anything more than Rs 300 is a bit of a stretch. "I think it is a great company. But above Rs 300, I don't think there is any margin of safety at all."

Below is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying video.

Today's response from Edelweiss is it is at a discount to the prevailing market price of the last three months which means nothing. You don't have a leg to stand on there. With that kind of a floor, the market price could have been Rs 1,000 would you have done the issue at Rs 800, 20% discount to that price. So you should just take that market price, it is a derived market price, but on that kind of volume, it is like saying Texmo Pipe deserves to be at Rs 125. So that has no relation and if the initial public offering (IPO) price or follow-on-public offering (FPO) price has been fixed keeping that benchmark in mind then I think that has been a complete fallacy. That should not be in the considerations at all.

The other thing while we started by saying that NMDC is a great asset which it is. Sometimes we run the mistake of saying there is nothing like this in the whole world, it is only NMDC which produces such iron ore where you can make gold out of it. We need to take a little easy. Sometimes in our country we tend to get carried away, whatever happens to the world, India will stand on its own. If you look at the comparisons, the big global iron ore companies of course with their minor adjustments and differences in the quality are trading at 2-3 times price to book on 2011 book prices and NMDC is trying to do an issue at between 8-9 times. So, yes, there are differences, but it is like saying Reliance will trade at 3-4 times of valuation of Exxon because Reliance has a marginal better growth profile. It never works like that, it is a commodity at the end of the day, you mine it, and you sell it. So there is no great unique intellectual property involved out here which will warrant a 3-4 times valuation multiple compared to the global peers.

I think it is a good asset, but anything more than Rs 300 is a bit of a stretch. It can happen in a liquidity situation where people want to own that stock even that I think is a bit specious because there is this large Indian company and therefore everybody will want to own might have been the case with National Thermal Power Corporation (NTPC) as well. NTPC is a bigger marketcap company than NMDC. What happened to that FPO? So you just need to rein in the optimism on that. This is all marketing talk from the institutions who have to sell this issue. I think it is a great company. But above Rs 300, I don't think there is any margin of safety at all. Longer-term, we are all there. From a ten-year perspective everybody will make money on NMDC. But above Rs 300, I don't think people should venture out.