Although it’s about a month since my vacation ended – I am still not completely in the groove, and wanted to do some light reading during the weekend.
For some reason, I picked up Wuthering Heights – which is an old novel, and finished it in about a couple of sittings. I loved it; enjoyed it immensely. The plot is a dark one, and there are tragedies abound in the novel. Bad things happen all the time, and this is usually not the kind of stuff that interests me.
I was wondering what was it about it that I liked, but didn’t get down to thinking too much about it. That was until today, when I chanced across this post about the secret millionaire on Bad Money Advice, – I read this story on the WSJ earlier, and like BMA concluded that this is going to be written about a lot.
This is a story about a 100 year old lady, who passed away recently and donated about 7 million dollars to her alma mater. The thing that makes this story interesting is that the lady was not rich at all. In fact, the source of her wealth were shares of Abbot Labs that she purchased in 1935 with $180, and left untouched. That amount compounded to 7 million dollars in these 75 years.
You can read the story on the WSJ link, and then the reasons you shouldn’t read any other post about it on the BMA link.
The funny part is that this rekindled my interest in finding out what makes a story interesting, and one of the first things I found, and agreed with, is that tension makes stories interesting.
It seems so obvious when you think about it. In almost every movie, there is a hero and a villain, and there is tension between them. Think of the TV shows you like – how many of them are based on some sort of underlying tension or conflict between the characters?
Think about the writers you like, and find interesting, even the funny ones (or especially the funny ones), and think of their stories and how they invariably start with someone falling in trouble and then explore their stories. Sir P.G. Wodehouse (of the Ask Jeeves fame) is one of my favorite writers, and even his harmless stories take you through some sort of trouble that the characters are going through. Tension makes stories interesting fast, and although we may hate tension in our real life, we love seeing others face it.
Which made me wonder how the story about the woman, which to me had no tension or conflict became so popular? Of course, I understand that not everything that is interesting has to have a conflict angle, but was there any underlying tension or conflict in this story that was playing my mind sub-consciously?
Probably not. And I think the most likely answer to why this story became popular with a certain segment of people is that on the face of it – the story shows the fruits of virtues like frugality, compounding, buy and hold investing, giving, and other such stuff that people hold dearly.
It is a good narrative that helps reinforce values they already hold, and showcase it to others as a proof of what they believe in is correct. I may be completely off the mark as far as this article goes, but I do think this is a dangerous tendency as it leads us to sometimes make a web around us and completely ignore the other side of the story.
I think it is important for us to be cognizant of this tendency and try and seek things that we disagree with as frequently as possible. Who knows what you might unravel, and it might even lead to a change in your position. It will not be as much fun, but may turn out to be much more rewarding.
I wrote about the NMDC FPO a few days ago, and I wanted to follow up on that with a post about the company, and hoped that the price band is set by the time I am ready to publish the next post, – and although the NSE website still states the price is to be determined, BS reports that the NMDC FPO price range has been set up between Rs. 300 – Rs. 350.
The stock closed at Rs. 398.50, and it will be interesting to see how soon it comes within the range of Rs. 300 – 350, if it does that at all. I have already written about the 5% discount retail investors will get, so will not go into that again.
Business of NMDC
NMDC stands for National Mineral Development Corporation and is the largest iron – ore producer in India. It produced 28.5 million tonnes of iron ore in fiscal 2009, and its main iron ore mines are located in the state of Chhattisgarh and Karnataka. Some parts of the company’s operation are exposed to rebel attacks due to their location, and here is something interesting I found in the red herring prospectus:
Certain of the Company’s mining operations are located in areas of India that are exposed to risk of attack by rebel groups. Such attacks have had and may continue to have a material adverse effect on our business, results of operations, and financial condition. For example, the slurry pipeline owned and operated by Essar Steel Limited at Chhattisgarh which carried the Company’s iron ore slurry production from the Kirandul Complex to Vizag was damaged by Naxalite rebels in May 2009. The slurry pipeline is currently not functioning and, as a result, instead of slurry, the Company is selling fines to the customer by rail from the Kirandul and Bacheli complexes, which has had a material adverse effect on the revenues and profitability that the Company derives from the supply to this customer
Let’s get to iron ore itself now – iron ore is primarily used in manufacturing steel, and steel’s demand is linked to the manufacturing, industrial and infrastructure growth.
NMDC primarily caters to the domestic market and sells most of its iron – ore to the Indian makers. Last year, exports constituted 15% of its revenues and were mainly to Korea and Japan.
Interestingly enough, NMDC also owns a diamond mine at Panna in Madhya Pradesh, which is the largest diamond mine in Asia.
NMDC also plans to develop an integrated steel plant in Chhattisgarh with a capacity of 3 million tonnes per annum, and the company has acquired land for this project.
NMDC also seems to have international ambitions with news stories surfacing about a possible bid for partial stake in an Australian mines. It has also got an estimated Rs. 12,000 crores of cash reserves and plans an expansion plan of Rs. 26,000 crores.
NMDC Financials
The company had total income of Rs. 85,754.6 million in fiscal 2009, and a profit after tax of Rs. 43,495.5 million. The nine months ended Dec 31st 2009, has seen it clock total income of Rs. 48,825.4 million and profit after tax of Rs. 23,897.3 million. The EPS for fiscal 2009 was Rs. 10.97, and at a price of Rs.350 for the FPO – the P/E comes out at about 32.
The red herring prospectus lists peer companies as GMDC and Sesa Goa and states that their P/E on Feb 1, 2010 was 18.3 and 18 respectively. The other interesting aspect about its financials are its zero debt status, and operating profit margins of 70 – 80%.
These were some things that I found most interesting about NMDC, and while I am going to stop here, if you are considering investing in this FPO – I highly recommend this great piece in Business Line about it, and this CNBC video featuring Udayan Mukherjee.
Disclaimer: This is not a buy or sell recommendation, but just a few observations about the company.
The NMDC Follow-on Public Offer (FPO) is going to be the next big disinvestment by the Indian government. The low retail subscription to previous IPOs and FPOs coupled with the need to raise funds from disinvestment to plug the fiscal deficit is prompting the government to sweeten its deal for retail participants.
The red herring prospectus of the NMDC FPO states that retail participants will get a 5% discount on the price set during the book – building process, and even more interestingly - ET reports that the price band may be set at 30 – 35% lower than the current stock price of Rs. 435.
This is interesting because the government really needs some retail participation in these offers to raise sufficient amounts to meet the divestment target, and retail investors have not really been interested in these offers of late.
The sale will start on March 10 and end on March 12, and we will know the price band on March 8th. I plan to do an IPO post on NMDC before that, but I just wanted to do quick post about this discount, and at least one factor you should keep in mind while thinking about it.
I wanted to do it a little ahead of time because very shortly there will be a lot of news articles about the NMDC FPO, and this discount, and I expect little bit of frenzy as well.
I think retail investors should keep in mind that the discount given is on the current price, but not long ago the price of the stock was Rs.140 odd. This company is in the iron-ore business, which like any other commodity is cyclical in nature. Iron – ore prices have risen sharply in the last year or so, and so when you think about the 30% or 5% or whatever the final number turns out – you need to think about these other things too. This is not to say that the offer will be over-priced, and I might even invest in it myself though I am not decided about that yet. Just something for you to think about in case the frenzy becomes too much.
