The curious case of MMTC, NMDC and STC
Vivek Sharma
08 December 2007
Stock prices of PSU companies like MMTC, NMDC and STC saw unusual, but spectacular, surge recently. Some of our absurd market regulations, and SEBI's procrastination in changing them, must be blamed.
Earlier this month, government owned trading company MMTC managed to become the most valuable PSU – ahead of oil giant ONGC - and the second most valuable company in the country after Reliance Industries. In the process, the company also saw its stock price zoom past Rs50,000 per share – the first stock to do so. At its highest, the stock price had vaulted more than 30 times from its lowest this year – an incredible move from Rs1,831 to Rs56,932! The glory didn't last though, the stock price has corrected over the last couple of weeks
MMTC, who? Well, in case you didn't know, it claims to be 'India's largest foreign trade enterprise'. That means, it imports some stuff and exports some other stuff. Among the stuff that MMTC imports and sells in the domestic market, they have gold and silver. In fact, the company claims to be the 'largest bullion trader' in the country. Not very sure if that claim will stand if we include smugglers as well in the official import data, but with gold prices at lifetime highs, that is not a bad business to be in.
Befitting its status as big boy of foreign trade, MMTC deals in a wide range of goods. It is the largest importer of non-ferrous metals, fertilizers and coal into the country. It is also the largest exporter of minerals from the country. The company is also one of the designated agencies to import wheat into the country. It has even diversified into manufacturing with a million tonnes per annum steel plant in Orissa, complete with a captive power plant. Impressive!
All these connected and not-so connected businesses added up to revenues of slightly over Rs23,225 crore last financial year, according to the BSE website. MMTC's own website gives a figure Rs23.35 crore, (see Profit & Loss A/C under Financial Data on the MMTC website), maybe because they are a bit confused about thousands and millions. Net profit for the year was Rs126 crore, giving an EPS of Rs25. For the first half of this financial year, the company has made a net profit of Rs76 crore and the EPS is slightly over Rs15. So, at its peak, the stock had a trailing earnings multiple of 1,864!!
If you thought MMTC was an exception, there are more. PSU stocks like NMDC and STC have also seen sharp appreciation in prices this year. NMDC saw its price soar from a low of Rs1,805 to Rs16,584 while STC jumped from Rs134 to Rs1,736. At its peak, NMDC had a market valuation of close to Rs2.2 lakh crore! At its highest level this year, NMDC stock was trading at a trailing earnings multiple of over 86 while STC enjoyed a multiple of over 93!
Some would have heard about STC, or State Trading Corporation, which is another government owned international trader like MMTC. STC has a wider product range than MMTC, including opium exports. NMDC, or the National Mineral Development Corporation, is the country's largest iron ore miner with an output of more than 20 million tonnes per annum. More interestingly, NMDC is the country's only diamond miner. Don't get excited, the company managed to dig out just under 80,000 carats of diamonds during 2004-05. De Beers, the diamond industry giant, mined close to 50 million carats that year!
