PremiumShares of NMDC Ltd were under pressure on Tuesday following the Centre's plan to offload 7.49% stake in the mining major remains through an offer for sale (OFS). The floor price has been fixed at Rs165 per equity share, a discount of 5.87% to Monday's closing price. The OFS opens for non-retail investors today and for retail investors tomorrow.
The government plans to sell up to 11,72,24,234 equity shares of NMDC, or 4% the total paid-up equity, with an option to sell another 10,22,78,144 equity shares (3.49%) in case of oversubscription.
Given the discounted floor price, the NMDC stock will likely face more pressure and a higher supply of equity shares to be traded in the market after the OFS will only exacerbate matters.
The stock traded at Rs173.35 apiece on Tuesday, down from Rs184.05 at the end of June as the buzz of an OFS gained momentum.
The fall in share price comes despite strong Q4 results reported by NMDC, healthy demand for iron ore and robust realisations.
A steady rise in global iron prices has meant that NMDC has seen its realisations improve. Global prices have remained above $210 per tonne since June, rising from sub $170 a tonne in March-April. This has allowed NMDC to undertake regular price hikes. The company’s lumps and fines are priced at Rs7,650 per tonne and Rs6,560, respectively, and significantly higher than the March quarter average of Rs5,825 per tonne and Rs4,711.
The company has therefore seen a sustained improvement in its per tonne profitability. The EBITDA/tonne during the March quarter was at Rs3,825, according to analysts’ calculations, up 28% sequentially. This will improve going forward despite some rise in mining royalty costs.
Volume outlook is also bright. Not only iron ore consumption remains strong with rising steel demand and prices, resumption of operations at Donimalai mines in Karnataka, during February, is expected to boost sales during FY22.
The expected commissioning of NMDC’s steel plant during the second half of FY22 is also a positive. The proposed demerger of the steel plant will also unlock value for investors. A handsome dividend yield is another added advantage, and. hence, most analysts remain bullish on the counter.
Analysts at Antique Stock Broking in their note dated 24 June had said that higher domestic steel production, firm international ore prices and steady domestic steel prices would support domestic iron ore prices. Commissioning of the steel plant in FY22 and progress on de-merger would improve return ratios and lead to a higher valuation of the asset as compared to current valuation of 0.3 times book value. They also have factored in additional volumes of 6MT from Donimalai mines and have revised their realisation assumption upwards by 20% and built in additional royalty provision leading to a 25% increase in FY22/23 EBITDA estimates.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!