The floor price of the Offer For sale of NALCO (National Aluminium) has been fixed at Rs 40 against the closing price of Rs 44.25 on the BSE and Rs 44 on the NSE. The share was under pressure since the advertisement for the sale appeared in the newspapers on Thursday morning. The share lost Rs 2.05 on the BSE or 4.43% while it lost Rs 2.00 or 4.34% on the NSE.

The government is selling 12.88 cr shares with an option to sell a further 12.88 cr shares at the floor price of Rs 40. Assuming that bids for the entire quantity are received at the floor price, the sale would realise a total of Rs 1031 crs from the sale. The issue is not expected to do well and the sale is likely to be bailed out once again by the state undertakings led by LIC. Readers would remember that in the recently concluded RCF offer for sale close to 47% was subscribed by LIC. The size of that issue was significantly smaller than NALCO.

The industry is not doing too well and the valuations compared to private sector competitors Hindalco and Sterlite are expensive. While NALCO based on current year earnings is trading at roughly 18 times current year earnings ending March 2013, Hindalco is trading at just under 10 times similar period earnings. The 52 week high and low for NALCO is Rs 63.80 and Rs 42.50. While the high was made in May 2012, the low was made in the first week of March 2013.

Looking at the prospects of the metal industry and the very high possibility of yet another bail out, it may in the best interests of investors to avoid the issue. For the brave hearted if the 10% discount is too tempting, bid marginally higher than the floor at Rs 45.05-45.10. The share would be under pressure as the discount is too huge and the price would correct itself to come closer to the floor price.

In conclusion, one would be better off staying away from the issue.