Sharekhan is of the view that in terms of valuation the NMDC Follow-on Public Offer is being offered at a substantial premium to its
domestic and global peers.
“NMDC has witnessed an impressive growth rate, both in terms of revenue and net profit, over the past few years. The company is the largest iron ore producer in India with access to significant reserves of high-grade iron ore (Fe 64%). Further, its robust margin coupled with the strong domestic and export demand potential of steel augurs well for the company and provides earnings growth visibility in the coming years.
In terms of valuations, the stock is offered at around 35-41x its FY2010 EPS and 16-19x EV/EBIDTA (rough working), which is at a substantial premium to its domestic and global peers. Only part of the premium can be justified by the possibility of further accretion of reserves and the expected robust growth in the production volumes in the coming years,” the report said.
NMDC has come out with a public issue of 33.22 crore shares. The company will help the government raise Rs 9,967 crore and Rs 11,628 crore at the lower and the upper end of the price band respectively.
This offer for sale of equity shares is Government of India’s decision to divest part of its shareholding in the company. The company is not going to receive any proceeds from this offer.
The issue closes March 12.
~ET
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