NMDC OFS: Should You Be Investing?

The offer for sale (OFS) by National Mineral Development Corporation or NMDC opened for retail investors today. Through the offer, the company aims to aggregate a total of Rs. 750 crore by divesting 1.5% stake with a green-shoe option of retaining over-subscription of the same quantum. The floor price for the offer is set at Rs. 153.50 per share.

For the institutional investor category, NMDC opened its OFS issue yesterday and got an overwhelming response with an oversubscription of 1.68 times. As per the NSE data, as against the quota of 3.79 crore shares reserved for the institutional class, the company received bids for over 6.36 crore shares.

Now as a retail investor, should you be betting on the NMDC OFS. Here is a take on the investment offer:

For retail investors

Discount of 5% on the offer price of Rs. 153.5: Retail investors as against the cut-off price of Rs. 153.50 decided for the issue will be allotted shares at a discount of 5% at Rs. 145.8 per share. The offering at discounted rate makes it a lucrative bet for investors with a reasonable valuation.

Strong fundamentals of the company: The company enjoys a debt free status with other strong fundamentals such as return in equity of more than 45% and dividend yield of 4%.

Margins likely to improve: With a turnaround in the steel industry and recent rate hike of 20% by NMDC which holds the monopoly position in the iron ore production space, margins of the company are likely to improve.

Also, as the company has taken the forward integration path by engaging in the manufacture of steel pellets, profitability of the concern will further increase with better return ratios.

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