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| Brokerages find NMDC's follow-on offer expensive |
| BS Reporter / Mumbai Mar 11, 2010, 00:36 IST |
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The follow-on public offer (FPO) of NMDC has not found favour with most brokerages due to its high valuations.
While market experts agree that NMDC does enjoy the benefits of huge iron ore reserves that are superior in quality when compared to its peers, they say this does not take away the fact that it is one of the most expensive companies on the basis of the price to earnings (P/E) ratio.
The FPO, which opened today, was subscribed 0.17 times till 5pm, with bids received for 57.12 million shares. Data showed that most of the bids were at the lower end of the price band (Rs 300). Meanwhile, NMDC shares ended the day at Rs 379.85, up Rs 4.20, or 1.12 per cent, on the Bombay Stock Exchange. On the National Stock Exchange (NSE), they rose Rs 2.35 to Rs 380.
In a recent report, CLSA, the global financial major, has pegged the company’s valuation in the range of Rs 152 and Rs 219 per share. “Our base case valuation for NMDC on the basis of the net present value (NPV) and average global peer multiples results in a valuation range of Rs152-219 per share,” it said.
“Using more optimistic ore price assumptions in our NPV and using 50 per cent premium multiples to global peers results in a higher valuation range of Rs 237-328/share,” it said.
CLSA, however, said there was a case “to value NMDC at a premium to its global peers on account of its high-quality, large reserves, with high proportion of reserves in the proven category along with higher probability of reserve accretion in the future”.
Angel Broking, meanwhile, has been more direct in advising clients to stay away from the offer. “We recommend an avoid on the FPO, as at the lower end of the price band, the stock will trade at an EV/Ebitda of 12.6 times and 9.6 times FY2011E and FY2012E, which is at a significant premium to its peers,” said the report.
Systematix Shares & Stocks has also issued an “avoid” recommendation. “Even at the lower end of the price band of Rs 300. we find the issue expensive, at P/E & EV/Ebitda of 16.2 times and 10.2 times, respectively, on FY12E,” it said. The brokerage values NMDC at Rs 259 per share based on a P/E of 12 times and EV/Ebitda of 10 times on FY12E estimates.
The FPO, which opened on Wednesday, comprises 332.24 million shares in the price band of Rs 300-350. It closes on March 12.
Interestingly, Sharekhan is of the view that a part of the premium can be justified by the possibility of further accretion of reserves and the expected robust growth in production volumes in the coming years. “In terms of valuations, the stock is offered at 35-41 times its FY2010 EPS and 16-19x EV/Ebitda (rough working), which is at a substantial premium to its domestic and global peers,” said Sharekhan.
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