The board of directors of the state-owned iron ore producer, NMDC Ltd, has approved the proposal to demerge its 3 million tonne Iron & Steel Plant in Nagarnar, Chhattisgarh.
“The Board of Directors of the Company at their meeting held on Thursday the 27th August 2020, inter-alia, have accorded in-principle approval to the proposal to demerge its NMDC Iron & Steel Plant (NISP), Nagarnar, Chhattisgar,” the company said in its BSE filing on Friday.
NMDC’s Nagarnar steel plant was under-construction at a cost of over Rs 20,000 crore, being completely funded by NMDC. The company had been raising non-convertible debentures for completing the steel project. After the demerger, all incremental capital expenditure for the steel plant can be self-funded by the demerged entity.
Analysts estimate that the in-principle approval by the board of NMDC to demerge the steel plant, i.e creating a separate listed company eventually with a shareholding akin to NMDC will be value accretive to the minority shareholders.
“If pursued in a time-bound manner, this can lead to separate avenues of fundraising for the government of India, allowing free cash flow yield and correspondingly the dividend yield of NMDC to increase substantially,” said ICICI Securities in a report.
This comes at a time when the company’s profits were severely hit by the viral pandemic and it reported a 55% decline in net profit at Rs 532.90 crore during the first quarter of the financial year 2021, as against a profit of Rs 1,179.28 crore in the same period last year.
“The COVID-19 had an impact on the operations of the company during the June quarter. There has been a loss of around 18.23 lakh tonnes of production and 23.94 lakh tonnes of sales, this has resulted in a loss in sales revenue of around Rs. 737 crore the current reported period.” the company said in its notes to accounts.
After the announcement, the company’s shares jumped 12.5% to trade at Rs 108 apiece.
“The demerger will improve return ratios of the mining entity substantially and allow investors a better pureplay mining opportunity. We see execution as the key risk,” ICICI Securities report said.
Source: Economic Times