Thursday, February 18, 2010

FPO ANALYSIS: NMDC – MINERAL RICH NAVRATNA – STRONG FINANCIALS –- INVEST

The Government of India owned public enterprise, NMDC, is involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, limestone, dolomite, gypsum, magnesium, diamond, tin, tungsten, graphite and beach sands etc.
NMDC is the country’s largest iron ore producer and exporter, presently producing about 30 million tons of iron ore from three fully mechanized mines.
NMDC has the only mechanized diamond mine in the country with a capacity of 1.00 lakh carats / annum, at Panna (Madhya Pradesh).
NMDC has made valuable contribution in the mineral sector during the last five decades and in recognition to the Company's growing status and consistent excellent performance, the Company has been categorized by the Department of Public Enterprises as ‘NAVRATNA’.

NMDC is presently producing about 22 million tonnes of iron ore from its Bailadila (Chattisgarh) sector mines and 7 million tonnes from Donimalai (Karnataka) sector mines. Bailadila complex possesses the world's best grade of hard lumpy ore having +66% iron content, with negligible deleterious material and the best physical and metallurgical properties needed for steel making.

OFFER DETAILS:

Offer for sale of 33, 22, 43,200 Equity Shares of Rs 1 face value, by the GoI, representing 8.38% of the outstanding Share capital of the Company. This being an offer for sale, the Company shall not receive any proceeds of this Offer and the Selling Shareholder shall receive all the proceeds. After the issue, the government holding will be approximately 90% of the company’s paid up capital.

The issue opens 0n 10-03-10 and closes on 12-03-10. UBS Securities, CITI group global, Edelweiss Capital, Kotak Mahindra Capital, Morgan Stanely and RBS Equities are the BRLMs.



FINANCIALS (RUPEES IN CRORES)

09 08 07

INCOME 8575.46 6412.01 4534.04

NET PROFIT 4372.25 3250.98 2320.21

NET WORTH 11605.59 8278.74 5752.77

RONW(%) 40.16 39.69 37.48

EPS 12.15 * 248.64 # 174.83 #


• * FACE VALUE RS 1
• # FACE VALUE RS 10



BUSINESS OVER VIEW

Iron ore sales represented approximately 99% of the consolidated income from operations for Fiscal 2009.The Company has access to significant reserves of high-grade iron ore. The Company operates the only diamond mine in the country, which is situated in Madhya Pradesh. NMDC intends to produce limestone, dolomite and magnesite, which are used internally to produce iron ore pellets for steel plants.

The Company operates a wind power plant through seven towers with an aggregate capacity of 10.5 MW. The power plant station is located in Chitradurga in the State of Karnataka, approximately 995 meters above sea level on hilly terrain.

The Company intends to develop an integrated steel plant project in Jagdalpur in the State of Chhattisgarh with a capacity of 3 mtpa. The Company is in possession of 995 acres of land and in the process of acquiring the remaining land.

STRENGTHS

• Large Reserves of High Grade Iron Ore
• Largest producer of iron ore in India by volume
• Resources making the Company a low-cost producer
• Well Positioned to Capitalise on India's Growth and Resource Potential
• Research and development center and in-house exploration capability

CHALLENGES

The Company's competitiveness and long-term profitability substantially depends upon its ability to maintain a low cost base, including low transport and labour costs.
Mineral reserves decline as the ore is mined; the Company's future results and margins depends upon the ability to access mineral reserves with geological characteristics that allow mining at competitive costs. The proposed merger with Sponge Iron India Limited, a loss making entity, may have an adverse impact on the operations.

RECOMMENDATIONS:

NMDC’s operating margin is in excess of 75%,has net profit margin of 51% and RNOW is around 40%. Zero Debt Company. Healthy dividend pay out record. The bonus component in the capital is 66.66%. Blue chip among the blue chips. The share is currently quoting around Rs 430.00. Going by the recent REC pricing, the issue is likely to be priced by a discount of 8% to the prevailing market price. INVEST.

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