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NMDC share buyback begins; should you tender shares?

"The board approved a proposal for buyback of 13,12,43,809 fully paid-up equity shares of a face value of Re 1 each from the company's shareholders at a price of Rs 105 per equity share payable in cash," NMDC said.

December 17, 2020 / 01:17 PM IST
 
 
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Shares of NMDC rose over 2 percent in intraday trade on BSE on December 17 as the company's share buyback process kick-started.

The share buyback of state-owned NMDC started on December 17 and is scheduled for closing on December 31 December 2020.

NMDC's board has approved a share buyback proposal of up to Rs 1,378 crore.

"The board approved a proposal for buyback of 13,12,43,809 fully paid-up equity shares of a face value of Re 1 each from the company's shareholders at a price of Rs 105 per equity share payable in cash," NMDC said.

Brokerage firm Emkay Global has a 'buy' call on the stock with a target price of Rs 160.

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"We raise iron ore price assumption by 22 percent/16 percent for FY21/22, resulting in EBITDA growth of 40 percent/23 percent. We raise our target price to Rs 160 from Rs 136, comprising Rs 132 for core mining business at 5 times FY22 EV/EBITDA and Rs 28 for steel CWIP," Emkay said.

Should you tender shares in buyback?

Analysts point out that the stock has better prospects in days to come and as the floor price of the buyback is less than the current market price of the stock, one should hold the stock.

Sunil Jain, Head of Research (Retail) at Nirmal Bang said the current market price of the shares of the company is above the buyback price so there is no point in tendering the share.

"Share can be on hold as iron ore prices continue to be on an upturn," Jain said.

Jyoti Roy - DVP- Equity Strategist, Angel Broking, pointed out that the open offer is happening at an offer price of Rs 105 per share which is at a discount to the current market price of nearly Rs 116 per share.

"There has been a significant increase in the stock price in recent times due to an increase in iron ore prices and increased interest in PSU stocks on account of cheap valuations. Given that the stock is trading above the tender price we would recommend investors to hold on to the stock," Roy said.

Vinit Bolinjkar, Head of Research, Ventura Securities, underscored the demand for steel has recovered significantly due to improved industrial production (especially automobile) and increased infrastructure activities

Iron ore mines have not yet resumed full capacity operations, restricting the adequate iron ore supply to the steel industry.

Bolinjkar added that these two factors have triggered the domestic iron ore prices and significantly reduced the gap between domestic and global iron ore prices. NMDC too raised its lump iron ore prices from Rs 2,650/tonne to Rs 5,200/tonne.

"We are expecting the current price levels to remain firm for the long-term due to rising demand-supply gap. NMDC is the largest domestic producer of iron ore and could report better volume growth and at a higher realization. This is valuation positive and could re-rate the stock," Bolinjkar said.

"Due to favourable business prospects for the company in the coming years, we would recommend a 'hold' at the current market price," Bolinjkar said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Dec 17, 2020 01:17 pm

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