Monday, June 21, 2010

MMTC FPO: High Value, But Valuation Needs Correction

Bigger by market capitalization than banking’s SBI (BSE: 500112, NSE: SBIN), software’s Infosys (BSE: 500209, NSE: INFOSYSTCH), heavy engineering’s BHEL (BSE: 500103, NSE: BHEL), steel’s SAIL (BSE: 500113, NSE: SAIL), mining’s NMDC (BSE: 526371, NSE: NMDC), or power generation’s NTPC (BSE: 532555, NSE: NTPC), is the country’s premier trading house Minerals & Metals Trading Corporation (BSE: 513377, NSE: MMTC). In fact, it is second only to Reliance Industries (BSE: 500325, NSE: RELIANCE) & ONGC (BSE: 500312, NSE: ONGC) in market cap. The share price is also the highest in India, having crossed Rs. 34,500 for a Rs. 10 face value. Critics say it is only due to the extremely low float of 0.70% with Government holding the remaining 99.30%, but that might not be the only reason. MMTC is the country’s largest international trading house, the leader in exports like minerals, the leader in imports like non-ferrous metals, steam coal, & fertilizers, and the leader in trading agro-products. Besides these commodity trades, Minerals & Metals Trading Corporation is the country’s largest importer and trader in gold. Setting the stage for the FPO is a bonus and stock-split which the market applauded with a 21% jump of over Rs. 6000 on a single day, recently. More worrying than the extremely low float is overvaluation by way of earnings and book value. MMTC trades at a P/E of over 720 years as against the industry average of 160 odd, and its price-to-book is an unbelievably high 268 times. Retail investors are advised extreme caution, and to watch how the bonus and stock-split improves liquidity and corrects valuations, before the FPO arrives.

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