Investors should wait for price discovery in NMDC post FPO: SPA Sec

MUMBAI: SPA Securities is of the view that low floating stock of is responsible for expensive valuations and major hindrance in price discovery for NMDC. It has advised long term investors to wait for fair price discovery post Follow-on Public Offer.

State-owned NMDC is entering the capital market on March 10 with its FPO through 100 per cent book building process. The company is offering 332,243,200 shares of face value Rs 1 each in a price band of Rs 300-350 per share.

The price band is lower by 13-25 per cent over the Monday's closing level. The government plans to raise around Rs 11500 crore through the issue. The issue closes Friday.

“At the lower band of Rs 300, NMDC is available at a P/E multiple of 37.3x based on its annualised FY10 earnings of Rs 8/share. FY10 has been a particularly bad year for the company as supplies to one of its key clients i.e. Essar was disrupted by Maoist attack on the supply infrastructure.

Being a resource rich company, its better to value the company by EV/ton of reserves. Based on its reserves of 1,360.6 mn tonnes, EV/Ton on lower band stands at $16.8 while it is $19.9 on upper band. Global leader in Iron ore ‘Vale’ on the other hand is available at EV/Ton of reserves of $10.4.

The company trades at expensive valuations on other parameters as well. Mcap/Sales of 20.9x is very expensive even on lower band where as on P/BV too, it commands 8.7x on lower band.

We believe that low floating stock was responsible for expensive valuations and major hindrance.