NMDC stocks tank 5% despite jump in net profit; company announces share buyback worth Rs 1,378 crore

Shares of National Mineral Development Corporation (NMDC) fell 5% on Wednesday morning, a day after the state-owned firm announced its quarterly results. NMDC reported a jump in net profit to Rs 773 crore, up from Rs 703 crore in the same period last year. The 9% jump in net profit was aided by the reduction in expenses and lesser tax outgo for the July-September quarter. Along with this the firm announced a buyback of 13,12,43,809  fully paid-up equity shares for Rs 105 per share. On Wednesday stocks were trading at Rs 88.65 per share

The buyback offer is at a 12% premium to Yesterday’s closing price of Rs 94 per share. The buyback represents 4.29% of the total number of fully paid-up equity shares. NMDC would see an outgo of Rs 1,378 crore for the buyback offer. NMDC has fixed November 23 as the record date for the buyback offer. “Minimum Acceptance ratio for the Non-Retail category is 3.8% and for the Retail category it is 15.6%,” brokerage and research firm Emkay Global said in a research note. This would translate to 1.97 crore equity shares that retail investors can offer in the buyback and 11.15 crore equity shares that non-retail investors can offer. 

Government of India, the promoter of NMDC owns 69.65% of the company or over 213 crore equity shares. Emkay Global expects the Government to participate in the buyback offer. NMDC has initiated buybacks twice since 2016. In both the previous buybacks the final acceptance ratio for retail investors was 100%. “However, the premium offered over the announcement day price in this buyback (12%) is significantly higher than the previous two buybacks (3% each). Due to this, we expect higher participation in the buyback, leading to a lower than 100% Final Acceptance Ratio for the Retail category,” Emkay Global said. 

Fundamentally, NMDC reported a 14% increase in volumes on-year basis to 6.6mt on a low base quarter. Export volumes declined 16% in the same time frame to 0.43mt. “Blended realization per ton declined 12% YoY to INR3,378/t due to lower iron ore prices. However, realization improved 9% QoQ on price hikes taken during the quarter,” brokerage firm Motilal Oswal said in a note while recommending investors ‘Buy’ the stock. Kotak Institutional Equities, on the other hand, have a ‘Reduce’ rating on the scrip.