Strategy for NMDC FPO

There are three mining companies in the world that come close to NMDC for comparisons. Thanks to a CLSA report, I could get the names and valuations of these companies. Add Sesa Goa to the list, we have four comparables.
To make things simple, let us only look at PE & EV/EBITDA multiples. The band of these four companies is so tight that the average of these would be the fair value for NMDC.

At CMP of 435: NMDC will be at 120% premium for both multiples
At 300, the price touted for the FPO: NMDC will be at 50% premium
At 275, the price touted for the FPO for retail: NMDC will be at 40% premium
At 200: NMDC will be at fair value

Looking at these valuation metrics, I would not go for it at Rs 300. Why would I pay 50% premium to the company when it has only 14% output of that of India. Moreover, its performance for FY10 is below average and the bet is for FY11 where we could see a substantial improvement in performance.

Even if I go for it, I would flip it immediately after listing. The retail investors should definitely make use of this opportunity as they would get substantial chunk stocks (due to $3bn issue size) at a 5% discount.

The listing would get done because of some of these factors. It is a Navratna company of India. Everyone, especially the foreign investors want to own it. It is supposed to have a superior ore compared to the others and at the lowest price in the world. It is cash flow positive company which is the most sought after in these markets.

Alternatively, investment in Sesa Goa could see a pop of about 10-15% testing the recent high of Rs. 460 as comparitive valuations with NMDC kicks in.

Even after listing, I would short NMDC and long Sesa Goa to play on relative valuations. I expect contraction of the premium going forward.