A friend of mine requested me to analyze this FPO and I go by my usual style:
There are always a 100 analyst reports which will tell you why one should invest in the stock. Hence I try to find out red flags, or reasons why one should not.
1. Please don’t look at the pre existing price of the stock because the govt share-holding is 98.36%. Which basically mean that there is hardly any shares for trading.
2. The company has made other profit of 884cr which has increased from 105cr over the past 5 years. This constitutes more than 10% of sales (not profit) Hence its EPS figures are under question.
3. When a company engaged in mining makes a profit of 4.3 thousand cr on a sales of 7.5 thousand cr, I become suspicious about how sustainable this high margins are
4. In a capital intensive industry like mining, the company has depreciation of less than 1% of sales. This raises question of how old the machinery is and how long will the company able to operate.
5. The company has 9.7 thousand cr of cash in its balance sheet. Which is more than 1 year of sales. WHY?????
6. PE of 39.22 of a company which has no plans to buy/operate new mines in the near future?
All this makes me think that the price of NMDC is unsustainable in the long term. One might still invest in the stock for listing gains.
Ankur Aggarwal
sree
Sandip Chaudhuri
vbr
shobhendrasrivastava
NMDC is a government owned company and it has access to mines. 2009 was a poor year for the steel industry as the global prices of iron ore and coke came spiralling down. This year, however, as the economy rebounds, iron ore prices are bound to go up with increasing demand from both China and India. As a result, NMDC’s margins are bound to be higher in the next financial year
Comment by Ravi — March 5, 2010 @ 11:11 am
@ravi…
the company is trading 20-30 times its sales. hence i am not too much excited by increased margins potential
Comment by Ankur Aggarwal — March 5, 2010 @ 12:17 pm
this entire govt disinvestment is a drama … something that would have saved money if it did private divestment to sbi and lic…
the fiis will laugh all the way to the bank
Comment by Prax — April 10, 2010 @ 5:35 pm
i guess thats a small price that LIC needs to pay for soverign guarentee…
btw this year if u see the LIC investment fund allocation budget they r planning a lot of money for govt ipo
Comment by Ankur Aggarwal — April 10, 2010 @ 11:58 pm
well lic reminds me of uti64
frankly what is the sovereign guarantee really worth ??
for an investor in india dealing with the sovereign gives him a bitter taste generally.. fdguarantee wherein the hi court had to intervene to give fd holders their due , 64 r good examples
Comment by Prax — April 11, 2010 @ 4:29 pm
good to see you active once again
i know there is a cap to the amount of funds in the savings account that are guaranteed by the RBI. (i think its 1 lakh) but I was not aware that FD have a guarantee from the RBI. can you provide me to the link for the high court intervention that u r referring to.
well i agree with ur assertion that sovereign guarantee is a sham.. and even warren buffet in his last annual report said.. i don’t believe that anything is too big to fail.
Comment by Ankur Aggarwal — April 12, 2010 @ 10:41 am
yes all savings and fixed deposits of participating banks are guaranteed to a lakh. dont have a link but distinctly remember
read this
http://www.caclubindia.com/forum/how-safe-is-your-money-at-banks–66828.asp
Comment by Prax — April 13, 2010 @ 10:31 am
thx.
so how have u been and whats new?
Comment by Ankur Aggarwal — April 13, 2010 @ 2:27 pm