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Systematix Research Report
We look at possible scenarios emerging for NMDC Steel Ltd. NMDC Steel was recently demerged from NMDC Ltd. at a ratio of 1:1 and trades at Rs 33/share currently. Valuation for NMDC Steel is interesting as-
the Government of India is divesting its 50.79% stake in NMDC Steel through competitive bidding,
GoI will transfer its 10% stake to NMDC, and
this will trigger an open offer for 26% minority stake.
NMDC Steel is a three million tonne steel plant set up by NMDC and has been in the works for more than a decade. It is spread over 1930 acres and has the optionality to increase capacity to 6 mt. According to the management-
major construction work is complete and Rs 210 billion has already been spent with about Rs 20-25 billion remaining to be spent,
the plant is expected to commission by April 2023 and production of 1 mt is envisaged in the first year of operations.
We believe any potential acquirer would weigh the likely positives such as long-term iron ore supply arrangement with NMDC at 135 km, port proximity of 300 km and negatives such as lack of adequate captive power, limited steel eco-system in the catchment area, and limited scalability optionality to 6 mt based on the current configuration.
News reports indicate that JSW Steel Ltd., ArcelorMittal Nippon Steel India Ltd., Jindal Steel and Power Ltd., Essar Steel, and Adani Enterprises Ltd. are the shortlisted bidders.
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