NMDC, MOIL to buy back 25% shares

Cash-rich public sector undertakings (PSUs) NMDC and MOIL Ltd will buy back 25 per cent of their paid-up equity.

The value of the buyback would be about Rs 10,000 crore, and the government is expecting Rs 6,500 crore from the buyback, considering the proportion of shares that would be tendered by the government and other shareholders.

The government holds 80 per cent stake in both companies. NMDC is an iron ore producer while MOIL produces manganese ore.

With a disinvestment target of Rs 56,500 crore for FY17, the government had asked cash-rich PSUs to use their surplus cash for capex or buyback of shares. As on March 2016, MOIL had 168 million outstanding shares of Rs 10 face value, while NMDC had 3,965 million outstanding shares of face value Rs 1 each. MOIL and NMDC had cash and bank balances of Rs 2,830 crore and Rs 18,443 crore, respectively at the end of FY16. The street is looking at the buyback positively as shareholders will benefit. Shares of MOIL closed at Rs 243, up 1.4 per cent while those of NMDC at nearly Rs 92, up 1.66 per cent on BSE on Tuesday. The stock prices of MOIL and NMDC have surged 10 per cent and six per cent, respectively, since the two companies announced their board meetings to consider share buyback on June 2.

Stock prices of both the companies have underperformed the Sensex in the past year, as commodity prices had collapsed due to the slowdown in China. The outlook has improved to some extent, and the imposition of minimum import price on imported steel from China will see an improvement in ore demand and realisation, say analysts.

MOIL had taken price hikes of 8-15 per cent for various grades of manganese in the March 2016 quarter after a gap of two years. NMDC too had taken price hikes in March, the first time since June 2014.

Analysts say that MOIL and NMDC utilising a part of the cash on their books for buyback will be positive. For MOIL, analysts at Emkay Research said, given its cash reserve of Rs 2,800 crore in Q4 FY16 and no significant capex in sight, the company should issue more dividends.