NMDC falls on profit booking. Should you buy the stock?

New Delhi: After a sharp rise over the last few sessions, shares of NMDC dropped on Friday on the back of profit booking.

The company has demerged its steel business from the core mining business. It will separately list its steel business entity named NDMC Steel, for which it has already received approval from the government. The shares of the company traded ex-demerger yesterday.

Shares of NMDC dropped about 3% to Rs 101.35 on Friday, before making a partial recovery. The scrip had settled at Rs 104.35 on Thursday.

NMDC fixed October 28, 2022 (Friday) as the record date for the demerger of its steel business. The eligible investors will get one share of NDMC Steel of the face value of Rs 10 each, for every share of NDMC of the face value of Re 1 each held by them.

Any investor, having the delivery of shares in their demat account as of October 28, the record date, will be eligible for the stake in the newly-listed entity.

Brokerage firms have mixed opinions on NDMC after the demerger trade and most of them are valuing the entity on their own metrics, leaving valuations in a wide range.

There has been a corporate action in NMDC wherein the steel plant has been demerged and will be listed separately in exchanges over the next few months, said ICICIDirect Research. "Based on the valuation, the tentative price of the new entity would be around Rs 22 per equity share," it added.

The brokerage has suggested buying NMDC with a target price of Rs 133 and a stop loss of Rs 98.

The Street is very optimistic about the resulting entity. NMDC Steel would be valued at about Rs 35-40 per share for a greenfield plant capacity of 3 MTPA, said Prashanth Tapse, Research Analyst, Mehta Equities. "Overall we remain neutral on the stocks."

Other brokerage firms expect NDMC Steel to be listed on bourses in December. NMDC transferred the steel plant at book value, which is Rs 19,000 crore, and debt of Rs 1,700.

"We increase our FY23E/FY24E EPS by 2% to factor in lower depreciation and marginally higher other income. We knock off Rs 36 per share for the steel plant from our earlier value of Rs 157 per share," said Nuvama Research.

It expects iron ore prices to remain subdued and post-demerger of the steel plant, NMDC would likely continue to pay higher dividends. It has a buy rating on NMDC with a target price of Rs 121 for the counter.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)