Today is a very auspicious date. The date month and the year are all the same, 12. One hope’s the auspicious date changes the fortunes of the government compared to the previous sale made in March 2010 of NMDC and the sale of Hindustan Copper in the month of November. The government of India would be divesting 39,64,71,600 equity shares through OFS (offer for sale). The floor price has been fixed at Rs 147. The closing price of NMDC on Tuesday was Rs 159.30, up Rs 4.55 or 2.94% compared to Monday. In the last month and last few months the share has been on a downward trend. The close on 30th Nov was Rs 162.65, while the close on 31th October was 176.75. The price on 16th February 2012 was at Rs 199.55 while on 31st December 2011 was at Rs 164.80.
The floor price fixed is therefore at a discount of Rs 12.30 or 7.72% to the closing price of Rs 159.30 on the BSE. The previous FPO of NMDC was in a price band of Rs 300-350 and the price was fixed at the floor price of Rs 300. This issue was in March 2010. The issue size was 33,22,43,200 equity shares. There was a striking distance between 2010 March and December 2012.
The revenues of NMDC in the year ended March 2008-2009 were Rs 7,564.03 crs and the net profit was Rs 4,372.38 crs. The EPS was Rs 11.03. The revenues in the year ended March 2010 fell to Rs 6,239.09 crs while the net profit was Rs 3,447.26 crs and the EPS was Rs 8.69. The current issue being done today is based on revenues for the year ended March 2012 which were Rs 11,261.89 crs, the Net profit Rs 7,265.39 and the EPS a healthy Rs 18.33. In the current half year ended September 2012, the EPS is Rs 9.04. Based on the EPS of the relevant period shares were offered in March 2010 at a PE ratio of over 34 times based on results for the year ending March 2010.
In December 2012 the shares are being offered at a PE ratio of 8.13 based on the six months period ended September 2012 on an annualized basis. Simple mathematics shows that while the profits and hence EPS have doubled from Rs 8.69 per year to Rs 9.04 for the half year, the price for the FPO and now the OFS has also been reduced to half from Rs 300 to a floor of Rs 147. This means that against the PE of over 34 times the same has been reduced to one fourth at 8.13. It sure is a complete climb down and speaks volumes about the conviction of getting shares sold through the OFS route.
The chart above shows the continuous fall in price post the FPO in March 2010. The chart above is self-explanatory and shows wealth destruction of shareholders. Looking at the changed valuations investors may try their luck in the OFS. There are however two things to be born in mind while applying for this issue. The first point is that though the company has cash on the books of close to Rs 20,000, it is planning to set up a steel unit which would need about Rs 15,000 crs. Secondly this company derives close to 95% of its revenues domestically and therefore spared the issues of currency and price volatility.
Last time around things looked skeptical and the asking price was extremely high. This time around things are better priced and there is money for investors who have a reasonable holding period.
NMDC FPO subscribed: fails to meet objective of retail and HNI response.
