Corporate Development     

Published: Feb 28, 2023
Updated: Feb 28, 2023

NMDC Steel

Privatization will give it wings

NMDC Steel (NSL), also known as Nagarnar Steel Plant, is coming up with a 3-million tonne per annum steel plant in Chhattisgarh state at an investment of Rs 20,000 crore by its parent organization and India’s largest iron ore giant, NMDC Ltd. It has a total land area of around 2,180 acres wherein the manufacturing facilities consume 1,940 acres.

The company plans to manufacture hot-rolled coil ranging in thickness from 1 mm to 12 mm with a provision to go up to 16 mm. The plant will have one of the largest blast furnaces in India. The by-product plant will produce tar, naphthalene and elementary sulphur. Against its power requirement of 296 MW, it will provide in-house generation of 80 MW power using waste gas and waste heat.

Originally, the plant, under implementation for the last seven years, was first scheduled to be completed and commissioned in July 2019. However, it has undergone cost and time overruns due to multiple reasons, including the long-drawn Covid-19 pandemic. On a happy note, as per the latest report, everything is almost ready and finally it will roll out its first hot-rolled coil in March 2023. NSL will cater to the country’s increasing demand for flat steel products, using superior technology.

NSL recently got listed on NSE and BSE after its demerger from NMDC. The shareholders of the flagship company were given, free of cost, one equity share of NSL bearing a face value of Rs 10 for every one share of Re 1 held in NMDC. The equity capital of NSL stands at Rs 2,930.61 crore wherein NMDC holds a 60.79% stake.

Interestingly, the government had already expressed its intent to privatise NSL even before its listing and is looking to sell 50.79% of the 60.79% promoter’s stake along with management control. DIPAM Secretary Tuhin Kanta Pandey has said that the government has received multiple preliminary bids for the privatization of NSL and the transaction will now move to the second stage. The bid process for the expression of interest (EoI) for strategic sale got completed in January this year.

A Rs 10 face value NSL stock is being quoted at Rs 31.95, translating into a market capitalization of Rs 9,363 crore. Against the total investment of Rs. 20,000 crore, upon its demerger as a separate entity, the government has transferred assets worth Rs 18,650 crore and liabilities of Rs 1,602 crore to NSL. Currently, a PSU tag and yet-to-be commissioned plant, coupled with a somewhat depressed market sentiment, does not attract large numbers of potential investors to the counter. But the fact remains that the outlook for the steel sector is certainly positive, NSL’s plant is almost ready for commissioning in March 2023, and the more important and bright spot is the privatization of NSL, which looks like it will get over by December 2023.

An investor with a 12-15 month horizon should consider investment in NSL for reasonably good returns. One could start accumulating in small lots at the current price. The counter might evince interest once concrete potential suitors like JSW Steel, Tata Steel, the Laxmi Mittal group and Vedanta emerge on the scene.

As we all know, private ownership by and large does make a difference in the pace and quality of growth, especially when a company’s promoters have a higher level of integrity, dynamism and resource- mobilizing capabilities. We anticipate the presence of these elements once NSL’s privatization process gets completed. In our opinion, that might become a game-changer for NSL and its stock price, which would be re-rated then.