Stock analysis: National Mineral Development Corporation

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Stock analysis: National Mineral Development Corporation
NMDC: Quotes, News
BSE 122.50BSE Quote1.3 (1.06%)
NSE 122.40NSE Quote1.3 (1.06%)
The stock of Government owned mining company, National Mineral Development Corporation (NMDC) looks attractive at the current levels. Here are some reasons for the same.

Current Price 167.90
52 Week High 304.90
52 Week Low 136.15
Huge cash reserves
NMDC has a staggering cash reserve in excess of Rs 18,000 crores, which is expected to swell further. This will allow the company aggressive expansion plans for the future, including its foray into steel.

Debt free company
NMDC is a debt free company and this certainly helps in a high interest rate regime.

Ambitious expansion plans
The company has some very ambitious plans for the future which should help boost the stock price in the months to come. By FY 2012-2013, the company plans to boost its production to 30 million tonnes from the current production of around 27 million tonnes. The company plans to set up a Rs 15000 crore steel plant in Chattisgarh and implementation of the project is in full swing. NMDC recently acquired the Australia-based Legacy Iron Ore in December 2011, and is planing to buy Wonarah rock phosphate reserves of Minemakers Limited. All these are expected to boost the profitability at the company in the years to come.

Attractive valuations
The company reported an EPS of Rs 4.69 for the quarter ending 31st December 2011. For FY 11-12 even if one assumes that it reports an EPS of around 19, the P/E translates to just 8.84 at the current market price of Rs 167.90, as on April 4, 2012. The company though looks slightly expensive on the P/BV front, considering the rapid expansion, that ratio might turn favourable in the years to come.  The company also has a record of consistent high payout of dividend (last year 330%). At the current market price the dividend yield annually works to around 2%.

The company's future depends on a favourable regulatory environment. Any adverse news flows (like a mining ban) on this front could hit the stock. Also, the company has ambitious plans as far as the steel plant is concerned. If the project is not implemented in time, or the project makes losses in the initial years, it might have a bearing on the stock.

(Disclaimer: The views expressed in this article are those of the author and may not reflect those of Greynium Information Technologies Pvt Ltd, its subsidiaries and associates. The author has made every effort to ensure accuracy of information provided; however, neither Greynium Information Technologies Pvt Ltd, its subsidiaries and associates, nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to buy, sell in the stock. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. Neither the author nor the company and its associates hold shares in NMDC)

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