Ever since the category was created on January 16, 2002, I have never looked at Z-group companies. These are companies that the Bombay Stock Exchange indicates are to be avoided like the plague, bottom of the investment barrel. A company gets the Z-halo if it violates three of seven listing criteria — giving notice of book closure and record dates, submitting its annual report, submitting quarterly shareholding pattern, paying listing fees, publishing quarterly results, redressing investor complaints and implementing corporate governance practices. So, what’s a company like National Mineral Development Corporation (NMDC) doing in a category like Z-group? A state-owned mining major, NMDC’s share price in 12 trading sessions has risen almost 70 per cent. Nothing shocking about that — Z-group companies are known to be illiquid, with little or no investor interest, and thus ripe for manipulators, particularly in rising markets (in falling markets they crash, in indifferent markets they remain invisible). With its floating stock less than 2 per cent (the government owns 98.38 per cent of this company), NMDC is highly vulnerable to manipulation. Of the 1.62 per cent non-promoter holding, institutions hold 1.4 per cent, leaving 0.22 per cent, of which 40 companies and 614 individuals hold 1.4 lakh (0.11 per cent) shares each. Of these 1.4 lakh shares, a mere 3,100 shares are in demat form. Without doubt, a manipulator’s fantasy — a company with great credentials, strong performance, whose shares are not available and when available only in lots of 100, which at current price means a minimum investment of Rs 3.8 lakh. Coming back to the ‘circuit sessions’, from a range of total turnover of 200 to 400 shares a day, the number of shares traded rose to 1,800 to 2,200 a day. On July 17, 10,100 shares were traded, the highest in the quarter, that translated into a value of around Rs 4 crore, a 2.5-fold jump. All this took the price of the company from Rs 2,300 to Rs 3,984 and its market capitalisation from under Rs 30,000 crore to over Rs 50,000 crore. At a little over Rs 51,000 crore today, NMDC is the 19th most valued company of India, after Indian Oil Corporation. But NMDC, at 32 per cent per annum, has over the past five years been growing twice as fast as Indian Oil’s 15 per cent. And while NMDC’s profits have been growing at 52 per cent per annum, it would be unreasonable to compare them with Indian Oil’s as the latter’s profits are virtually government administered. NMDC’s returns on net worth and capital employed are over 55 per cent and 85 per cent respectively — enough to make any asset manager drool. Operating in the business of iron ore mining, which, given the sudden steel requirement across the world and at the peak of a strong commodity cycle in a business that’s being increasingly led by infrastructure development in India and China, this dull-boring company in a dull-boring industry should be a fund manager’s fantasy and a must in every equity portfolio. Lack of liquidity has prevented that. But some larger questions arise, some for the government, some for regulator Securities and Exchange Board of India (Sebi). First, when listing requirements need at least 10 per cent of the shares with the public, why is NMDC being allowed to get away with 1.62 per cent? Why is Sebi not demanding that the company disinvest its balance 8.38 per cent in favour of institutions and the public? How can the government, which is rightly imposing and demanding effective liquidity from private companies, not follow the same rules for companies it owns and runs? Second, why is the promoter of NMDC, the government, allowing it to remain in Z-group? Which are the three compliance needs that this company has not met? When The Indian Express contacted the company, we were told that the Z-group tag was because its shares were not in demat form. That’s changed and BSE should be upgrading the company shortly. But of the seven non-compliance criteria of BSE that define a Z-group company, demat is not one; surely, there are other non-compliances. Despite repeated attempts, the company’s chairman and managing director, B Ramesh Kumar, couldn’t be contacted. Finally, in the results season that’s on right now, and the recent run up in its stock price, can we expect great numbers from NMDC? If so, is it worth investigating as to who has been buying this company as a result of which its market capitalisation has jumped by Rs 20,000 crore — approximately the value of Mahindra & Mahindra or Ambuja Cements — by trading in just 30,700 shares? The answer is important for reasons that go beyond NMDC — every third listed company belongs to Z-group.
