Shares of NMDC Ltd, India’s largest iron ore producer, appeared to have plunged 66.50% over Thursday’s closing price of ₹214.45. However, this perceived decline is a result of certain trading platforms showing unadjusted share prices after the company turned ex-bonus today.
Adjusted for the 2:1 bonus issue, NMDC shares were actually trading 0.60% higher at ₹71.84 on the NSE. The discrepancy arises because some trading apps are displaying unadjusted prices, creating confusion among investors.
Understanding NMDC’s 2:1 Bonus Issue
In its latest corporate action, NMDC has issued 2 bonus shares for every 1 share held by existing investors. The bonus shares are allocated at the existing face value of equity shares.
Impact of Bonus Issue:
- Increase in Outstanding Shares: The total number of shares increases, enhancing market liquidity.
- Reduction in Share Price: The stock price adjusts to reflect the increased number of shares, reducing the value per share.
- Effect on Financial Ratios: Metrics such as Earnings Per Share (EPS) and Book Value are diluted due to the larger share base.
The record date for determining eligible shareholders is Friday, December 27, 2024, with the bonus shares set to be credited soon.
NMDC’s Performance and Market Sentiment
Despite the ex-bonus adjustment, NMDC remains a strong performer in the public sector space:
- Dividend Payouts: The company has a consistent track record of paying dividends, enhancing shareholder value.
- Price Movement: Adjusted prices reflect a stable trend, with the stock trading higher today post-adjustment.
Iron Ore Demand and NMDC’s Growth Outlook
Analysts project strong volume growth for NMDC due to rising demand in India’s steel sector. Sharekhan expects NMDC’s volumes to grow at a Compound Annual Growth Rate (CAGR) of 8% between FY24 and FY27, driven by robust demand for steel production.
However, challenges remain:
- Pricing Pressure: Despite recent 17-18% price hikes for both iron ore lumps and fines, the increase may not be sustainable due to weak steel sector demand.
- Uncertain Outlook: Analysts maintain a cautious stance on NMDC’s pricing power, which could impact profitability.
Brokerage Ratings and Valuation
- ICICI Securities: Maintains an ADD rating on NMDC.
- Sharekhan: Recommends a HOLD rating due to pricing uncertainties but acknowledges strong volume growth potential.
The stock currently trades at 5.3x and 4.8x its FY26 and FY27 EV/EBITDA, reflecting moderate valuation levels.
What Lies Ahead for NMDC?
The long-term prospects for NMDC remain promising, with its leadership in the iron ore segment and the increasing demand from India’s growing steel industry. Key factors to watch include:
- Sustainability of Price Hikes: Can NMDC maintain its recent price increases despite pricing pressure?
- Steel Sector Growth: How will the steel sector’s recovery impact NMDC’s volume growth and profitability?
- Dividend Policies: The company’s consistent dividend payouts continue to make it an attractive option for long-term investors.
While short-term fluctuations in prices and adjustments due to corporate actions may confuse investors, NMDC’s fundamentals and growth prospects solidify its position as a market leader in the iron ore sector.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. Investors should consult their financial advisors before making any investment decisions.
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