India’s largest iron ore producer – National Mineral Development Corporation (NMDC) is to consider the proposal of buy back of equity shares today (07 Jun’16). The company via corporate announcement stated that a meeting of the Board of Directors of the company will be held on 07 Jun’16 to consider proposal for the buy back of the fully paid up equity shares of the company of face value INR 1 each.
NMDC’s cash & bank balance amounted to a total of INR 184.43 bn as on 31 Mar’15. And in FY 16, company’s capital expenditure amounted to INR 36.79 bn.
Buy back of shares is considered a good option to use the idle money in utilizing resources in a more efficient manner.
Positive outcomes that may result from shares buy back
By using the idle cash currently lying with the miner, the fetched money can be utilized for resource augmentation.
NMDC is primarily engaged in the iron ore mining business but it is also expanding towards steel production. Some of its prominent upcoming projects include:
1. Steel plant in C.G.– The miner has plans to set up a steel plant with crude steel capacity of 3 MnT pa in Nagarnar (Chhattisgarh)
2. Pellet plants in C.G. and Karnataka – NMDC’s Karnataka pellet plant of 1.2 MnT pa capacity is expected to start commercial production in this fiscal. Another pellet plant of 2 MnT pa capacity is expected to start by FY20
Apart from the upcoming steel and pellet plants, NMDC is also looking forward to expanding its iron ore reserves both in states of Chhattisgarh as well as in Karnataka.
Increasing reserves of iron ore will lead to better availability of domestic ore in the country which will support the upcoming steel capacities of India. As government plans to produce 300 MnT crude steel by FY25, there will be ample requirement of the key steel making raw material.
In the present scenario, steel makers are battling with high cost of raw materials, declining prices of finished steel products backed by subdue demand. Increasing availability of iron ore in domestic market will make lead to decline in domestic iron ore prices.
Government in favour of PSU’s buy back shares
Earlier in May’16, government announced that the public sector companies should make use of their cash balances more efficiently and increase resources. Private companies have been using buy back as a strategy of investment management and assess ways to increase resources.
Leave a Reply