Please refer to important disclosures at the end of this report
Government of India is divesting 9,33,12,000 shares (9.33% stake) in
MMTC. Ithas set a floor price of
60 (72% discount to CMP) for the OFS.
We recommendinvestors to AVOID subscribing to shares due to expensive valuation.
MMTC was established in 1963 and is the largest trading company in India andone of the major trading companies in Asia. It is a Mini Navratna company focusing on trading of commodities ranging form minerals to agro commodities.It deals in Precious metals, fertilizers, Coal and Hydrocarbons, Metals, Agroproducts and other minerals. MMTC also has a wholly owned subsidiary namedMMTC Transnational Pte Ltd (MTPL), Singapore and various joint venturesincluding a pig iron plant in which MMTC holds 49.8% stake.
Mineral exports to remain muted:
The developments such as ban on iron oremining and export from Karnataka, regulation of export from eastern sector,increase in railway freight and higher export duty for exports, increase indomestic demand of ore iron ore etc have resulted in lower exports of iron ore inIndia during FY2012. As per Federation of Indian Mineral Industries (FIMI), ironore exports from India had declined by 38.5% yoy to 62mn tonnes duringFY2012 on account of export ban in Karnataka, stringent measures in issuingexport permits in Odisha, a sharp decline in international iron ore price andincreased export duty. Further, as per FIMI, total iron ore exports during FY2014are estimated to decline significantly, thus affecting top-line of MMTC.
Theincrease in domestic steel production capacity has also reduced the availability of Chrome and Manganese Ore for exports. Moreover, export duty on chromeore has increased beginning March 2012 from
3,000/tonne to 30% ad valoremwhich is likely to impact MMTC’s FY2014 sales volumes. Even gold imports intoIndia are likely to be lower due to increase in customs duty on gold by thegovernment. This is further likely to hit MMTC’s top-line going forward.
Historical financials highly volatile
: The company’s financial performance hasbeen inconsistent and erratic over the past few years. During FY2012, itsconsolidated adjusted net profit declined by 62.0% yoy to
43 cr. During FY2013,it reported a net loss of
71cr on a standalone basis due to 56.9% decline in top-line (The company has not reported consolidated FY2013 results). The pastfinancials of the company do not indicate stability in earnings going forward.
MMTC is a trading company with a 'Five Star Export House' status.However, at the current price, the stock is trading at a very expensive valuation of398x FY2012 PE due to low free float (0.67% of its market cap). Even at a floorOFS price of
60, it is trading at FY2012 PE of 113x, which is very expensive inour view.
Hence, we recommend investors to AVOID subscribing to MMTC OFS.
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Expensive valuation despite huge discount
FPO | Metals
June 12, 2013