Stock Reivew: NMDC

Natural resource stocks have been in the news over a period now. We have seen Coal India retain its position as most valued company (in competition with Reliance ), we are seeing GMDC moving up quite swiftly on the hope that they will be doubling their production of lignite and other minerals….In lieu with industry trend, NMDC too looks quite interesting at the current price of Rs 220.

The ban on iron ore mining is not applicable to this company as they have their major presence in Chattisgarh. Considering the demand and the layoff which have been happening in Karnataka, probably, this company will stand to gain.

Going by the financials, the networth of the company is Rs 19000 crore and this entire amount is held as cash and bank balances. In Q1, Rs 2800 crore was topline and Rs 1800 crore came in as bottomline, which translates into an EPS of Rs 4.50 on an equity base of Rs 400 crore with face value of Re 1. Therefore, it is likely that the company should be able to post about Rs 20 earnings per share for FY12.

Knocking off the cash held by the company, which works out to about Rs 50 per share, it gives a value of about Rs 170-175 per share that is eight times price to earnings( PE). Coal India is now ruling close to 15-16 times, and Sesa Goa at six to seven.

Coal India and this company have similar shareholding pattern with low public float; 90% is government and about 8-9% is held by the institutions.

So, the moment you see renewed buying interest coming into the stock, this can easily move to about Rs 255-260 in the next couple of months. This stock is capable of giving annualized return of 20% because from hereon, the risk is very low. If I consider from the FPO price perspective, and peer comparison too, the stock is quite attractive at the current levels.