MMTC which had launched its OFS for 933.12 lac shares at a floor price of Rs 60 was subscribed. The issue received bids for 358.74 lac shares from non-institutional investors and 1083.86 lac shares from institutional investors. The total bids received were for 1442.61 lac shares and the issue was subscribed 1.54 times. The indicative price was Rs 60.86. The government at this price would garner Rs 568 crs.

The share price of MMTC was locked circuit down at Rs 190.35 down 10% yesterday. Today also the shares are locked circuit down 10% at Rs 171.35. The gap between the floor price and the market price is Roughly Rs 111 and it would take roughly 20 trading sessions of getting locked down 5% each day to match.

A question being asked is whether government panicked in fixing the price at a discount over slightly over 70% or wanted to kick start the divestment? The answer lies somewhere in between as the company has not been doing much in recent years. The company reported a net loss for the year ended March 2013, its revenues for the year have become less than half and gone are the dyas when one had to go to a canalising agency for foreign trade. Today foreign trade is a prerogative of everyone and just about anyone can import or export.

Having some 10 odd companies to divest in the next two months to complete the minimum public shareholding norm to be met, it makes sense to start as early. In any case the subscription pattern of MMTC clearly indicates that the shares applied for were largely by LIC and PSU banks. It would be fair to assume that anywhere between 2/3rd to 3/4th of the issue size has been subscribed by these entities.

One more divestment, one more bailout and this would continue to be the story. One remembers the previous divestments of Hindustan Copper and NMDC and their current market price.

MMTC kicks of the divestment programme of the government for the financial year 2013-14. The government would be selling 933.12 lac shares at a floor price of Rs 60. The closing price of MMTC on BSE was Rs 211.45 and on NSE it was Rs 210.05. The floor price is a discount of 71.62% on the BSE and 71.43% on the NSE. Based on the floor price the government would realise Rs 559.87 crs assuming the offer is fully sold.

MMTC reported revenues of Rs 69,056 crs in the year ended March 2011, Rs 66,325 in March 12 and Rs 28,598 crs in the year ended March 2013. The net profit in March 11 was Rs 121.64, Rs 70.72 in March 12 and a net loss of Rs 70.62 in March 13. The EPS for the same period is Rs 1.22, Rs 0.71 and Rs (0.71).

The market capitalization of MMTC as of yesterday was Rs 21,145 crs which would at the floor price reduce to Rs 6,000 crs. The company as the name suggests is in the business of trading and has in the past done trading in commodities as diverse as gold, iron ore and wheat. At the end of the day it is a trading company and has margins which are as low as 1.07% at the operating level while at the net level they were negative last year and at 0.40% in the previous year. At the floor price of Rs 60 ignoring the EPS for the year ended March 2013 which was negative and considering EPS for March 12 of Rs 0.29 the PE ratio is a staggering 206.89 times.

The price chart of the scrip for last 12 months is given below. One can see the value erosion over time where the share has fallen from over Rs 800 to the current price of Rs 211. In the next few days it would adjust to the offer for sale price of Rs 60.

It makes no sense to apply for the share in the OFS even at this steep discount of 71%. The picture at the end of the day would be that LIC and PSU banks would by force have to bail out the issue and complete the divestment objective of the government.