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.