NMDC FP - Follow on Public Offer Details

[sunil]

Here are the details of NMDC FPO slated to open later this month,

Issue Period:                                          March 10– March 12, 2010
Price Band:                                           Will be declared later 
Lot Size:                                                Will be declared later
Registrar:                                              Karvy
 
Issue:                                                   332,243,200 Equity Shares of Rs.10/- each
Net offer to Public:                           330,500,000 Equity Shares
QIB Book:                                          165,250,000 shares (50% of Net issue size)
Retail Book:                                      115,675,000 shares (35% of Net issue size)
HNI Book:                                         49,575,000 shares (15% of Net issue size)
Employee Reservation is 1,743,200 Eqty Shares

[chetan]

Centrum Research wrote in a note on the FPO of NMDC,

The stock currently trades at 47.4x FY11E (rough cut) earnings and 30.2x FY11E EV/E. The stock looks expensive vs domestic and global peers, which trades at 10x – 12x one year forward earnings and 6.3x- 7.3x one year forward EV/E. We expect the company to sell their stock at 31% discount to the
CMP and therefore recommend Subscribe at Rs300-Rs350 levels, given that it’s implied EV/T on rough estimates works out to about US$28/tonne vs US$21.5/tonne for Sesa Goa. We have arrived at the above-mentioned price band, largely on EV/tonne basis and expect an EV/tonne of about $17/tonne at the lower end of our band and at $20/tonne implied at the upper end of the band. At Rs350, the stock looks fairly valued and we thus recommend peers above Rs350 levels.

[Cher]

NMDC FPO:
High revenue visibility, superior margins, large cash coffers and zero debt make NMDC a preferred mining stock. However, stiff market valuations are the only cause for concern.  Invest below Rs 300.

Source: Business Line

[sunil]

CLSA Investment Research also says the Current Market Price of the company is on the HIGHER SIDE,

While NMDC’s EPS is likely to decline 22% in FY10 to Rs8.6 on account of lower contract iron ore prices and lower production on account of a Maoist attack on a key iron ore slurry pipeline, we see a strong 96% rebound in FY11 driven by c.50% expected rise in iron ore contract prices and restoration of the pipeline. While peer multiples suggest a value of Rs172-219/sh, we get an NPV of Rs152/sh based on our assumption of US$55/t real long-term iron ore price. However, using 50% premium to peer multiples and higher iron ore prices (for NPV), we get a value of Rs237-328/sh.

Upside potential to existing reserves/production could result in NMDC trading at a meaningful premium to NPV

[komal]

SMC Equity Research has the following view on the FPO of NMDC

As the proceeds are primarily raised for a divestment process & the selling shareholder is president of India, there is no equity dilution. At the lower price of Rs.300 the stock trades at a P/BV of Rs.8.71 of its Quarter Ending Dec09 book value Rs.34.42 & at the upper price band of Rs.350 the stock trades at a P/BV of Rs.10.17.Now, Considering the P/E valuation, the company is trading at a P/E of 34.72x times on the lower price band & at a P/E of 40.51x times on upper price band of its TTM EPS of Rs.8.64.

[chetan]

Angel Broking has asked Investors to AVOID the FPO of NMDC with the following note,

NMDC is India's leading iron ore producer and enjoys the benefits of huge iron ore reserves, high grade ore and lower costs. Moreover, NMDC’s plans of diversifying its operations by moving downstream, expansion of mines and the upcoming contract negotiation augurs well for the company going ahead.
Fair Value lower at Rs225

We recommend an Avoid on the FPO, as at the lower price band the stock will trade at EV/EBITDA of 12.6x and 9.6x FY2011E and FY2012E, which is at a significant premium to its peers. In comon to its domestic peer, Sesa Goa (only listed domestic iron ore company), which is trading at 7.6x and 6.2x FY2011E and FY2012E EV/EBITDA, we feel that the FPO is overpriced.

[chetan]

Prabhudas Liladhar Analysts Kamlesh Bagmar and Archit Singhal have asked investors to AVOID the IPO of NMDC,

We value the stock at a premium of 30% over its peers’ average valuation to provide for quality assets, highly profitable operations and strong
balance sheet. However, the targeted valuation is at a premium of 37% to our valuation of Rs200 arrived on the basis of DCF which is not incorporated with
contribution from the investment in steel business and aggressive increase in the mining capacity

[chetan]

Systematix advises its investors to AVOID the IPO of NMDC,

The FPO issue is expensive even at the floor price of Rs300 – at a P/E, EV/EBIDTA & P/BV of 16.2x, 10.2x & 4.7x respectively on FY12E. Global peers are trading at much discounted valuations as discussed later. Also our DCF based valuation gives a fair value of Rs228/share. While fundamentally the company is robust in terms of huge iron ore reserves of 1bn MT, low production cost of USD10/MT & 67% increase in annual production levels to 50mn MT by FY15E - our concern is purely on the valuation front. We have valued the stock at Rs259 considering average of P/E & EV/EBIDTA of 12x & 10x on FY12E estimates and thus recommend to AVOID the offer.