NMDC FPO issue band’s at Rs 300-350

   THE government has fixed a price band of Rs 300-350 for the follow-on public offer of mining giant NMDC, and will raise between Rs 9,900-11,550 crore depending on the cut-off price. The issue will open on Wednesday. The upper end of the price band translates into a 12.6% discount to Monday's closing price of Rs 400.60, while at the lower end, the discount works out to 25%. 

   The government has abandoned the French auction route for the NMDC offering and will use the conventional book-building process in the hope of getting a better subscription. Under this method, bids are invited from investors within the specified price band. 

   Market watchers are hopeful that the NMDC issue may see a better response from institutional investors, as the stock is illiquid, and large blocks cannot be bought through the open market. At present, the floating stock in NMDC is less than 2% of the equity base. 

   The government will be divesting 8.38% of its stake — 33.22 crore equity shares — in NMDC, with 17.43 lakh shares reserved for eligible employees. This will raise the floating stock to 10% of the equity base. At the lower of the issue price, the stock is available at 27 times its FY09 earnings. Compared to an EPS of Rs 11.03 for FY09, the company has clocked an EPS of only Rs 6.06 for the nine month ended December of the current financial year. For the full year, both revenues and net profit are likely to be lower than those in FY09. 

   This is the third public sector company to launch an FPO in the past two months, and the government is hopeful that it will get its disinvestment formula right this time. The NTPC offer saw poor investor interest and was subscribed just 1.2 times, while the REC failed to attract retail investors despite the overall issue being subscribed over three times. NMDC is the largest mining company in the country with iron ore production of about 30 million tonnes. It reported a net profit of Rs 4,350 crore on a turnover of Rs 7,500 crore in 2008-09.