NMDC, Nalco, MOIL stake sale: Why sell when prices are low?
Union Government is likely to sell stake in three PSUs namely National Mineral Development Corporation (NMDC), National Aluminium Company (Nalco) and MOIL in the last quarter of this fiscal to raise about Rs 6000 crore.
The three PSUs have already announced share buyback programmes in the current fiscal. While NMDC and MOIL are yet to complete their share buyback programme, NALCO had finished the process last month.
Is this the right time?
The government has budgeted to raise Rs 56,500 crore through PSU disinvestment this fiscal. Of this, Rs 36,000 crore is to come from minority stake sale and Rs 28,500 crore from strategic sale.
So far this year, the government has mopped up Rs 3,583 crore from its stake sale in the PSUs.
The disinvestment plans, are expected to reduce the country's fiscal deficit. According to a Business Standard report, the government will have to raise additional nearly Rs 32000 crore to meet the fiscal deficit target of 3.5% of gross domestic product (GDP) for the current fiscal.
India's fiscal deficit during April-July was Rs 3,93,000 crore (58.69 billion), or 73.7% of the budgeted target for the fiscal year ending in March 2017, government data showed .
The government had an eye on the state-owned, Aluminium major company, NALCO from last couple of years.
This year in January, the government was planning to opt for the buyback route instead of an offer for sale (OFS), to divest its stake in Nalco so that it can get much higher prices from the stake sale.
Under the buyback option, as per the regulatory body, Securities and Exchange Board of India (Sebi) norms, a company fixes the maximum price for the buyback which is independent of stock market performance.
While, under OFS, the pricing depends on the stock performance is the last three to six months.
The government had planned to sell only 10% of its stake in Nalco, but later raised it to 25% to meet its disinvestment target. In 2013, the government had sold 10% of its stake in the company and raised Rs 630 crore through an OFS.
In January, if the company had opted for OFS, the 25% government stake in Nalco would have been valued at around Rs 2300 crore, a Financial Express report had said.
If you look at the stock performance of Nalco, from January 2013 till October 2016, the company has not able to fetch any returns to long term investors. The stock price which was trading at Rs 49.4 on January 1, is now trading at Rs 49.05 (as on October 7), merely any gain or loss.
Till January the company lost more than 30% since June 2015 due to its margins getting affected majorily because of declining global commodity prices and increase in cheap imports from China.
Till the end of the March 2015, Nalco had a cash balance of Rs 4628 crore.
China, being the world's largest producer and consumer of commodities, produces nearly 55% of global aluminium.
As per a Business Standard report, TK Chand, Chairman of Nalco has said that as China is going to increase aluminium production and revive production at its old potlines, it is a case of major concern for the company.
Mining giant, NMDC, last month had opened its share buyback programmes. Though the company has not yet informed the stock exchanges about its completion.
It had also posted nearly 21% rise in the sales of iron ore for the September month, after a gap of four months.
The total sales of iron ore of NMDC during the month grew up by 20.75% to 15.83 million tonnes (MT) as against 13.11 million tonnes (MT) in the same month last year.
The total production of iron ore of the state-controlled mineral producer during the period surged up by 12.61% to 13.93 MT as compared to 12.37 MT in the corresponding period of last year.
With the international prices of iron-ore now back to $55-60 a tonne levels, the company raised prices for lumps at Rs 2,100 per wet metric tonne (wmt) and fines at Rs 1,760 per wmt. These are significantly higher than Rs 1,700 and Rs 1,460 for lumps and fines for September, a Business Standard report said.
This week on Thursday, the stock price of the company had hit a 52-week high.
This year, in January, the share price of the company was at Rs 91.2, while it jumped to Rs 117.45 (as on October 7), a return of nearly 29% to the shareholders and specially to the government. The government holds around 80% stake in the company.
Reportedly, the company's cash balance as on March 2015 stood at Rs 18,443 crore.
Regarding the stake sale in NMDC, the government officials have seen good demand as investors felt that the quality of the iron ore mined in India is far better than those elsewhere.
Infact, according to a The Hindu report, Rashtriya Ispat Nigam Limited is planning to merge with NMDC, as RINL is estimated to have incurred heavy net loss in the first quarter.
Along with NMDC, MOIL had also opened its share buyback programme last month, which is still not completed.
On Thursday, the company had informed the exchanges that it has acquired land adjacent to its Balaghat mine in Madhya Pradesh. The mine purchase is expected to boost capacity and increase revenues.
"The company has got cash of over Rs 2,800 crore. Even after the buyback, it will still have free cash of around Rs 2,000 crore", The Economic Times reported quoting G Chokkalingam, who owns stake in the company. As per the report, he explained that this would be about 50% of the market cap post the buyback at the current market price.
On Sunday, in a regulatory filing, the company said it will buy back up to 3.48 crore shares, which is around 20.72% stake at a price of Rs 248 per equity share.
MOIL, the largest domestic producer of manganese ore, faced the losses last year when the demand slowed and prices fell by over 60%. In 2015-16, sales slipped 24% to Rs 628 crore due to sustained price pressure. Operating margin slid to a mere 11% in 2015-16 from enviable levels of about 50% in the past. Net profit fell to Rs 173 crore from Rs 428 crore in 2014-15.
But, in this year, the manganese ore prices have increased and the local demand has picked up. The company is also planning to double output in next four to five years, which will be supported by its cash reserves of Rs 2910 crore.
Since October last year, the stock has jumped by 39.1%. Last year, on October 7, the shares of the company were trading at Rs 197.9 per piece, which has now surged to Rs 275.45 as on October 7, 2016.
Further, last month, the company had commission a 48KW capacity grid-connected rooftop solar system with net-metering. With this, the company is likely to save Rs 10 lakh annually.