Mumbai Govt looks to sell 12.15% through OFS route to raise about R1,400 crore The government has, on several occasions, indicated that it plans to embark upon its FY13 divestment plan by selling 10-12% stakes in natural resources giants National Aluminium company (Nalco) and National Mineral Development corporation (NMDC). While market observers believe that NMDC is an attractive bet due to the regulatory issues faced by rival Sesa Goa, they think Nalco may not see similar interest from investors given its operational problems. “Nalco is a good business to invest in for the long term. However, it faces operational and management issues, which could put off investors looking to benefit from the issue in the medium term,” said an analyst. According to him, sourcing of coal is a key operational trouble affecting the financial performance of the company, while the management style remains ‘anemic or passive’. As per latest reports, the government is planning to offer 12.15% stake in Nalco as early as Friday through the offer for sale (OFS) route to raise about R1,400 crore. It is believed the shares may be offered at a 10% discount to last Wednesday's closing price of R46.85 on the BSE. On Tuesday, the stock fell 0.4% to R46.4 . However, analysts say more than the extent of discount, investors would be looking at clarity on capital allocation by the company after the stake sale. “The price and valuation of an issue is a function of a company's vision on capital deployment that leads to cash-flow generation. However, if a company fails to provide any clarity on both these aspects, which is the case with many public sector companies, investors may not get enthused by the discount,” said another analyst. The leading aluminium producer, in its latest quarterly results, reported a flat revenue growth due to a drop in aluminum sales. Its operational performance was its weakest ever with the Ebitda turning negative by R1.5 crore for the three months to September. Net profit declined more than 96% to R5 crore due to a 25% q-o-q jump in power and fuel costs. While it reported a decline in its net earnings even in FY12 , during four of the last five fiscals, the company's profit has witnessed a drop. According to Edelweiss Institutional Equities, Nalco is likely to face challenges related to aluminium production and coal sourcing that could affect the profit margins going ahead. After pricing in these challenges, besides rising input costs, the brokerage has reduced Nalco’s FY13 and FY14 operating income estimates by 17% and 15%, respectively. As per Bloomberg data, as many as 70% of the 26 analysts tracking the company have suggested that investors sell the stock. The stock offered a trailing 12-month earnings per share (EPS) of R3.3 against R17.7 by its rival, Hindalco Industries. The stock is currently trading at a 25% discount to its five-year average price to earnings (PE) multiple, whereas Hindalco is trading at a discount of 55%.