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.
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.