VAIBHAV BHANSALI CORPORATE ANALYSIS AND VALUATION PROJECT NMDC.pdf

8/18/2019 VAIBHAV BHANSALI CORPORATE ANALYSIS AND VALUATION PROJECT NMDC.pdf

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CORPORATE ANALYSIS ANDVALUATION

PROJECT

COMPANY - NEW MINERAL DEVELOPMENT

CORPORTION(NMDC)

By:

VAIBHAV BHANSALI

B.M.S (V Semester)

13/MG/4568


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NEW MINERAL DEVELOPMENT CORPORTION

(NDMC)

The National Mineral Development Corporation Limited is a state

controlled mineral producer of Government of India. Until 28th September, it

was a part NIFTY 50 stocks, which was therein replaced by Adani Ports.

It is India's largest iron ore producer and exporter producing about 30 million

tons of iron ore from 3 fully mechanised mines in Chhattisgarh and Karnataka.

It also operates the only mechanised diamond mine in the country

at Panna in Madhya Pradesh.


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BALANCE SHEET OF NMDC FOR THE AY 2014-15


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STOCK MARKET PERFORMANCE OF NMDC IN PAST 2 YEARS

(as on 13th october, 2015)

Adjusted prices NMDC for 2013-14 and and 2014-15


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CALCULATION OF UNLEVERED BETA AND COST OF EQUITY

Calculation of Unlevered beta


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CALCULATING IMPLIED COST OF EQUITY AND DIVIDEND

GROWTH

After taking into account the dividends paid by the company during the period mentioned the

following growth in dividend and implied cost of equity has been calculated through MS

Excel.

Implied cost of equity


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CALCULATION OF REINVESTMENT RATIO, RETURN OF EQUITY

AND GROWTH RATE


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The following is a summary of an in-depth corporate analysis of the firm.

Calculation of Beta:Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. A beta of 1 indicates that the firm’s security will move

with the market. A beta of greater than 1 indicates that the security price will be more volatile

than the market. In our case, the beta values came as follows:

In years where 1 year beta> 2 year beta, it suggest that NMDC shares have become more

volatile in the recent period. Moreover,

Unlevered beta=levered beta

Which means the firm doesn’t have debt and is solely reliable on equity.

Country Risk Premium: NMDC, being a company which curtails its business in India itself, has 0 country risk.

Cost of Equity: CAPM:

Using the data calculated above and Market Rate (Rm) and Risk Free Rate (Rf) whichwere taken to be 9.499 & 7.063, CAPM model was applied to determine the COST

OF EQUITY:

Re = rf + (rm – rf + CRP) * β

=9.27853046

Implied Cost of Equity:

By working backward using the growth rate (0.005882353), current share price

(99.10) and dividend(8.55) the implied cost of equity is 9.215884134.


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Cost of Debt:Cost of borrowing debt in case of NMDC is 0 because it is a zero debt firm and reliable only

on equity.

Weighted Average Cost of Capital:WACC = (E/V)*Re + (D/V)*Rd*(1-Tc) = 36.78659

Re = cost of equity 0.092785

Rd = cost of debt 0

E = market value of the firm's equity 396.47

D = market value of the firm's debt 0

V = E + D = total market value of the firm’s financing (equity

and debt)

396.47

E/V = percentage of financing that is equity 1

D/V = percentage of financing that is debt 0Tc = corporate tax rate 30%

Forecasting Ratios:

Earning Measure Ratios

1) Earnings Per Share (EPS) 16.2

2) Net Income From Non Cash Assets (In crores) 3,771.13

3) Operating Income (In crores) 7,778.35

Reinvestment Measure Ratios

1) Retention Ratio 47.21%

2) Equity Reinvestment Rate 19.68%

3) Reinvestment Rate 19.68%

Return Measure Ratios

1) Return on Equity (ROE) 19.86%

2) Non Cash ROE 15.45%

3) Return on Capital 26.31 %

Since the return ratios are greater than the industry average and the company has retainedalmost 50% of its earnings, it is a clear signal of growth in future. The company has a lot of

cash reserves and no debt, thus minimal risk.


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REVIEW OF LITERATURE

https://www.nmdc.co.in/Financial%20Information/Handlers/DownloadFile.ashx?FinancialYear=2014-15&Quadrant=Q4

http://www.moneycontrol.com/india/stockpricequote/mining-

minerals/nmdc/NMD02

https://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-

8#q=NMDC+STOCK+PRICE+FOR+2+YEARS

Company Valuations

Alex W. Howard, CFA, ASA, and Alan B. Harp, Jr., CFA, ASA


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THANK YOU

VAIBHAV BHANSALI CORPORATE ANALYSIS AND VALUATION PROJECT NMDC.pdf

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