Wednesday, 1 June 2011

Once Hidden Now Discovered - OMDC & Eastern Investment

Shareholders have been demanding that the firm list its shares on BSE and NSE to give them an exit opportunity which they eventually got which started trading on National Stock Exchange (NSE) with effect from 29.09.2010.

There were some developments that occurred last year. Execution of the scheme transformed the corporate identity of three companies under the aegis of Bird Group which were converted into Government Companies from their earlier status of government managed companies.

Restructuring process had another significant effect especially for EIL. Apart from its change in status to a government company, the very scheme uplifted EIL to the status of Holding Company of two operating mining companies. The Orissa Minerals Development Company Limited (OMDC) and The Bisra Stone Lime Company Limited (BSLC) are operational units of the Bird Group of Companies which was placed under the management control of Rashtriya Ispat Nigam Limited.

OMDC has estimated iron ore reserves of 200 million tonne and Bisra Stone Lime Company has limestone reserves of 367 million tonnes and dolomite of about 280 million tonnes.


OMDC: The results of 2010-2011 were unappealing with sales falling from 84 cr to 49 cr, net profit falling from 74 cr to 22 cr, EPS falling from Rs 1240 to Rs 368.

The company is planning to put up 2 million tones beneficiation plant and 2 million tones pellet plant at Barbil, district – Keonjhar, Orissa, to beneficiate low grade fines which are not marketable today.  Necessary formalities have been completed for single window clearance from Government of Orissa and it is hoped that very shortly, company may get the said clearance. Consultancy Development Center (CDC), under Ministry of Science & Technology, Government of India, has been appointed as a consultant to fix an agency to build the plant on turn-key basis. The estimated cost of project is about Rs. 1,000/- crores.

The spike of 20% yesterday was conceivably because Orissa Minerals Development Company Limited has recommended a dividend of Rs. 55.30/- per share for the financial year ended March 31, 2011.

Eastern Investment: It achieved an income level of Rs.12.18 crores comprising Rs. 9.57 crores from investments and Rs.2.61 crores from other sources in 2009-10.  PBT and PAT stood at Rs. 11.93 crores and Rs. 11.07 crores respectively. The management recommended a dividend of Rs.11.50/- per share of Rs. 10/- for the year 2009-10.  The future prospects of the company will be depend on the workings of OMDC as the company’s major earning comes from its investments and the company proposal

Normally the convention has been to value a pure holding company with no operating assets of their own at a discount unless the markets have been ripe with expectations of merger and consolidation or an IPO. In such cases the holding is valued at the NAV or close to NAV but in other cases the valuation is at a discount – prima facie. I don’t think EIL will go for IPO which suggest that it will forever trade at significant discount.  There was various news that Rashtriya Ispat Nigam Limited (RINL) plans to seek the approval of the government to restructure its equity capital in the near future. The current equity base of the company was very high at Rs 8,000 crore and no company would be comfortable having a such a huge equity base.


Investment Theme:


I believe both EIL and OMDC are currently overvalued since the listed operational companies are not valued over PE of 14-19 while OMDC is trading at a PE of 135.  Though I know it’s not an exact science of valuation but it gives a fair view.

The profitability of OMDC’s pricing power is tied directly to the steel cycle which is currently weak. According to China Iron and Steel Association data, China’s steel production in CY2011 is expected to increase by 6.0% yoy over the coming five years. The Australian Bureau of Agricultural and Resource Economics and Sciences expect Chinese crude steel production to reach 674mn tonnes (+7.5% yoy) in CY2011. That could be one of trigger but most of the ore will be used internally thus even if there is buoyancy, it will not impact the result on positive basis. 



Equity Capital (Shares)
Current Market Price (Rs) (Note 1)
Market Capital (Cr) (Note 2)


Note 1
Valued at Current Trades,
Average of Bid and Ask Price
Note 2
At Price of 6200, the EIL is valued  at 600 cr which is 40% to his NAV.


I request the readers to share their views.  Satyakam Mishra (

No comments:

Post a Comment