NMDC Ltd, a Public Sector Undertaking (PSU) and a major player in India's iron ore mining industry, saw its shares reflecting a dramatic 66.50% drop on some stock trading apps. However, this decline is not indicative of a real loss but a result of unadjusted stock prices on certain trading platforms. Here’s what caused the discrepancy and why NMDC remains an attractive long-term investment despite the market noise.
What Caused the 67% Drop?
NMDC shares turned ex-bonus today, with a bonus share issue ratio of 2:1. For every one NMDC share held by existing investors, two new shares were allotted. Adjusted for this bonus, NMDC's share price was trading slightly higher by 0.60% at ₹71.84 on the NSE. However, certain brokerage apps continued to display yesterday’s unadjusted closing price of ₹214.45, misleading investors into believing the stock had plummeted.
In a bonus share issue, companies allocate additional shares to existing shareholders without altering the total equity value. Unlike a stock split, these shares are issued at the existing face value, leading to:
- Increased outstanding shares.
- Lower earnings per share (EPS) and book value per share.
- Enhanced liquidity.
- Reduction in free reserves.
Such corporate actions reward shareholders and make the stock more affordable, often boosting market participation. NMDC has a history of similar bonus issues, including the 2:1 ratio bonus in May 2008.
Despite the apparent drop, NMDC’s fundamentals remain robust. Analysts predict significant growth, supported by:
- Iron Ore Demand and Steel Sector Growth: Sharekhan estimates NMDC’s volumes to grow at an 8% CAGR over FY24-27, in line with India’s booming steel industry.
- Consistent Dividend History: NMDC has been a reliable dividend-paying company, enhancing investor confidence.
- Price Adjustments and Volume Growth: Recent price hikes of 17-18% in iron ore lumps and fines showcase NMDC’s ability to capitalize on demand surges.
However, pricing pressure persists due to weak global steel demand, and analysts remain cautious. Sharekhan maintains a 'Hold' rating, citing an uncertain pricing outlook.
Broker Recommendations
- ICICI Securities: ‘ADD’ rating, signifying moderate optimism.
- Sharekhan: Projects strong volume growth but advises caution, with valuations at 5.3x/4.8x FY26/27 EV/EBITDA.
While the perceived 67% drop in NMDC shares may have caused panic, the reality is far from grim. The ex-bonus adjustment has made the stock more accessible and liquid, paving the way for increased participation and long-term value creation. Investors should focus on NMDC’s growth potential and dividend consistency while keeping an eye on pricing challenges in the iron ore market.
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Akanksha Sinha
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