NMDC gains 5% ahead of share sale; brokerages maintain ‘buy’

NEW DELHI: NMDC Ltd surged over 5 per cent in trade on Tuesday, ahead of its share sale on Wednesday. The government on Tuesday may announce a floor price for the NMDC issue in the range of Rs 145 to Rs 150 a share.

At 01:40 pm, NMDC pared some of its morning gains and was trading 2.1 per cent higher at Rs 158.15. It has hit a low of Rs 151.40 and a high of Rs 164.15 in trade today.

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The price band at which government is offloading shares is at a discount of 3.07-6.3 per cent at Monday’s closing price of NMDC shares on BSE at Rs 154.75 per share.

The stock is likely to fall in short term chasing the likely price band which is below Monday's close of Rs 154.75, according to analysts.

“The NMDC stock has been correcting from levels of Rs 200 (February 2012) and with the suggested price band of Rs 145-150 acts as a good support for the stock,” said A.K Prabhakar, Senior Vice President - Equity Research at Anand Rathi.

“If LIC and PSU banks bail this issue, then NMDC can move lower to levels around Rs.140 also post the issue,” he added.

The government, which has 90 per cent holding in the iron ore producer NMDC, plans to divest 39.65 crore shares, amounting to 10 per cent of its equity, through offer for sale, the route followed in the Hindustan Copper share sale last month. Microsec Capital Ltd is of the view that the likelihood and the extent of discount offered at which FPO may get offered would be a balancing between the global demand cycle and NMDC’s rising status as the only pure iron ore player.

NMDC is India’s largest iron ore producer and exporter with a 40 per cent market share in the iron ore producing industry and substantial high quality iron ore reserves.

Brokerages see value in NMDC

“Keeping in view the price band at which government is offloading its shares, we believe the stock is ‘a steal’ with attractive valuation,” Microsec said in a report. The brokerage firm has assigned a 12-month target price of Rs 225 per share, translating into an upside of over 40 per cent from current levels.

The brokerage firm is of the view that NMDC is likely to grow at a CAGR of 13.48 per cent in terms of revenue and 12.67 per cent in terms of PAT over FY12-16.

“We value NMDC at a premium to its peers on account of its huge reserves, higher margins backed by low cost of production, high iron ore quality, better visibility in earnings, market leadership in domestic iron ore space and improving cash balance despite huge capex,” said the Microsec report.

Barclays has also upgraded NMDC from underweight to overweight. The brokerage has also upped the price target from Rs 173 to Rs 210.

The brokerage firm feels India’s iron ore industry is poised for a structural shift as output falls and demand increases. Barclays expects pricing dynamics to shift in favour of miners.