Nalco offer fails to excite investors, govt fails to sell 5% additional shares at 10% discount

MUMBAI: The offer-for-sale, or OFS, of National Aluminium Company (Nalco), held on Friday, received a tepid response from investors. Though the offer was fully subscribed, the government failed to sell an additional 5%, despite having fixed the floor price of Nalco shares at a 10% discount to its closing price on Thursday.

The offer garnered Rs 629 crore for the government. Meanwhile, the government has raised Rs 22,834 crore through stake divestment in seven companies so far this fiscal year (FY13). The divestment target for the current fiscal stands at Rs 30,000 crore and will help it contain fiscal deficit at 5.2% this year.

The government received bids for 15.69 crore shares against an offer of 25.77 crore shares, including an additional 12.88 crore shares under a greenshoe option. The indicative price or weighted average price, according to the BSE website, wasRs 40.05 against the prevailing market price of Rs 40.35. The offer attracted bids for 4.08 crore shares with 100% margin and 11.61 crore shares with 0% margin. The government fixed the floor price at Rs 40 a share.

Analysts attributed the poor response to weak fundamentals of the company. “Investor appetite for the offer was poor due to company’s weak balance sheet, lack of clarity on its future prospects and sectoral problems,” said Daljeet Kohli, head of research, IndiaNivesh Securities.

Though the government offered shares at a 10% discount compared to 5% discounts in earlier PSU divestments such as NTPC and RCF, domestic brokerages had a mixed view on the issue.


While advising its clients to avoid subscribing to Nalco’s offer, domestic brokerage Angel Broking said, “At the OFS price, Nalco is trading at 7.4 times its FY2013E and 5.2x times FY2014E EV/EBITDA, which is at a significant premium compared to its peers. Nalco has been facing coal supply issues for some time now, which disrupted its operations in the past few quarters.”

The stock has declined 18% so far in 2013, underperforming the broader market. The BSE Sensex has remained flat this year.

On the other hand, IIFL said the floor price was at a huge discount to its historic average valuation and also that of its international peers. “We do not see much downside from the floor price of Rs 40 and advice investors to subscribe to the offer with a target price of Rs 44.6,” IIFL said in a report.

Nalco’s performance over the past two quarters has been impacted by lower availability of bauxite from its captive mines. Due to closure of its Panchpatmali mines for a month and heavy rainfall in the region, supply of bauxite declined. The company managed to get a temporary working permit in mid-December at Panchpatmali for one year. “With an increase in bauxite supply, we estimate a ramp up in alumina production from Q4FY13,” said IIFL.

Apart from Nalco, the government has divested its stake in NTPC (Rs 11,430 crore), NMDC (Rs 5,828 crore), Hindustan Copper (Rs 1,375 crore), National Buildings Construction Corporation (Rs 125 crore), Oil India (Rs 3,065 crore) and RCF (Rs 310 crore).