NMDC gains after CCEA nod for demerger of Nagarnar unit

NMDC rose 1.06% to Rs 80.80 after the Government of India (GoI) on Wednesday approved the demerger of the under construction Nagarnar Steel Plant (NSP) from the company.

The Cabinet Committee on Economic Affairs (CCEA) has given its 'in-principle' approval to the demerger of Nagarnar Steel Plant (NSP) from NMDC and strategic disinvestment of NSP by selling entire Government of India stake in it to a strategic buyer.

NSP is a three million ton per annum (mta) integrated steel plant being set up by NMDC at Nagarnar in Chhattisgarh in an area of 1980 acres at revised estimated cost of Rs 23,140 crore (as on 14 July 2020). As on date NMDC has invested Rs 17,186 crore on the project out of which Rs 16,662 crore is from NMDC's own funds and Rs 524 crore has been raised from bond market.

With the approval, CCEA has amended its earlier decision taken on 27 October 2016, to disinvest NSP as a unit of NMDC. The proposal to demerge the NSP into a separate company before its disinvestment has some advantages. With the demerger, NMDC can focus on its core activities of mining. After demerger, NSP shall be a separate company and the managements of NMDC and NSP shall be accountable for their respective operations and financial performance. Shareholders of NMDC will also be shareholders of NSP in the proportion of their shareholding. After the demerger, investors will have better visibility of the operations and cash flow of NMDC and NSP separately. The demerger will also be tax neutral from the point of view of capital gains.

The CCEA has taken note that the process of demerger and disinvestment will be initiated in parallel and disinvestment of NSP is expected to be completed by September 2021.

NMDC is India's single largest iron ore producer, presently producing about 35 million tonnes of iron ore from 3 fully mechanized mines, two located in Chhattisgarh and one in Karnataka. The Government of India has 69.65% shareholding in NMDC. It reported 54.9% slide in consolidated net profit to Rs 531.35 crore on 40.6% fall in net sales to Rs 1,937.50 crore in Q1 June 2020 over Q1 June 2019.

Currently, the stock was trading 42.07% below its 52-week high of Rs 139.50 hit on 23 January 2020. The scrip jumped 30.32% from its 52-week low of Rs 62 hit on 13 March 2020.

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