MMTC hits lower circuit for 5th day

Touches 52-week low as investors continue to dump shares acquired at steep discount

Shares of state-owned commodities and trading company MMTC hit a lower circuit of 5 for the fifth consecutive session on Wednesday as investors continued to dump the shares that were acquired at a steep discount of 72 during the offer for sale OFS conducted last week.

Since the shares touched their lower circuit,trading was halted in the early part of the session after the BSE and the NSE were flooded with sell orders of over 3 crore shares. As against the five-day average volume of 2.03 lakh shares,only 11,766 shares changed hands on both exchanges on Wednesday. Orders for a whopping 2.3 crore shares on the sell side remained pending,stock exchange data showed.

Experts said a large portion of sell orders came from high net-worth individuals and retail investors. Significant sell orders were also placed by some public-sector banks. Based on the current market rate,investors arrive at a mark-to-market MTM gain of 145,assuming the shares of MMTC were allotted at Rs 60 per share. Those who acquired the shares at Rs 80 apiece,stare at an MTM gain of nearly 84. This is far higher than the Sensex8217;s positive returns of 1.10 in the last one week.

The scrip,which closed the day at Rs 147 per share,has lost over 30 since the announcement of the floor price of Rs 60,at which the government had offered to sell 9.33 crore shares. The MMTC auction was subscribed 1.5 times with majority of the bids coming from insurance companies,banks mainly PSU banks,mutual funds MFs,pension funds,long-only funds,hedge funds. Life Insurance Corporation LIC was among the top five bidders in the MMTC auction.

Experts said MMTC8217;s stock price will continue to slide until the demand-supply mismatch gets rectified. In addition,the company does not deserve high valuation it enjoys despite the poor financial performance,they said.

The extent of pending sell orders will continue to follow in the session to come8230;Until the price falls to Rs 60-70 per share,markets will continue to the huge influx of sell orders, said an equities dealer at Kotak Institutional Equities.

For a Re 1 share,the stock was trading at Rs 200 per share one week back,which translates into a one-year trailing price to earnings P/E ratio of 398 times,Bloomberg data showed. The stock had touched a high Rs 890 per share.

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Its MMTC intrinsic value is not more than Rs 20-30 per share. It is a loss-making company,the business is highly cyclical and the margins are as low as 1.5-2. If you see the top- and bottom-line for the last five years,it has stagnated. The company had engaged in several joint ventures JVs that were financially unsuccessful, said a head of a Mumbai-based investment baking firm,requesting anonymity.