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Motilal Oswal Report
The proposed demerger of NMDC Ltd.'s steel plant should unlock value.
Investment in steel plant stands at approximately Rs 170 billion (Rs 55 per share) and we value it at 50% discount.
While Q1 FY21 results were weak as expected (Ebitda plunged 61% YoY) due to the impact of Covid-19, the pricing outlook has improved substantially on better domestic steel prices and demand.
Demerger of steel plant positive - NMDC has taken cumulative price hikes of Rs 700/tonne in July-August 2020, thereby, reversing most of the Rs 900/tonne price cuts take in Q1 FY21. It expects pricing to improve further.
Management expects de-merger of the Nagarnar steel plant to get completed in nine to 10 months.
Shareholding pattern in the demerged entity would remain as that of NMDC. It is evaluating options of listing or divestment in the demerged entity.
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