MOIL - Manganese ore prices likely to decline c10% from Oct13 - Avendus

MOIL is likely to announce a c10% price cut on manganese ore for the quarter ending Dec13f, in line with the decline in international prices. We estimate the sales volume to fall 3.4%, against our earlier estimate of 5%, partially offsetting the manganese ore price cut. The FY14f-FY15f EBITDA has been cut by 8.7% to account for higher input costs. We cut our Sep14 TP to INR256, following the rollover based on the historical average (Oct12-Sep13) P/E and EV/EBITDA multiples. Cash and cash equivalents of INR160/share, as on Mar14, cushions the downside. Upgrade to Buy, as the recent correction in the stock price discounts the weak price outlook.

Ore prices likely to be cut by c10% for quarter ending Dec13f

We forecast MOIL to cut manganese ore prices by c10% for the quarter ending Dec13f, after maintaining stable prices during the quarter ended Jun13. The price cut is likely to be in line with the fall in international ore prices. BHP Billiton cut lump ore prices by 10% since Aug13, whereas fines prices have been cut by 9%. South African 38-grade lump ore prices have been cut by 17.4%. Our revenue estimates have been cut by 0.4% on a 2.5% reduction in average realisations. Sales volume is estimated to decline 3.4%, against our earlier estimates of 5%, offsetting the cut in manganese ore prices.

Cut EBITDA estimates by 8.7% to account for higher input costs

The FY14f-FY15f EBITDA estimates have been cut by 8.7% due to lower-than estimated realisations. In addition, higher bulk diesel prices and employee costs have raised production costs by 7.8% for FY14f. Depreciation is likely to report a CAGR of 25% during FY14f-FY16f, as capital expenditure increases to INR2bn for FY14f and INR4bn for FY15f compared to cINR400mn during FY11-FY13. Increased capital spending is likely to boost the mine output from 1.14mn tonnes in FY13 to 1.2mn tonnes by FY15f, and 1.5mn tonnes by 2020.

Upgrade rating to Buy with Sep14 TP of INR256

We cut our EPS forecast for FY14f-FY15f by 5.5%, as we reduce our realisation estimates by 2.5% and raise input costs. We value the stock based on the historical average (Oct12-Sep13) EV/EBITDA multiple of 2.7x and P/E multiple of 8.8x. Our Sep14 TP of INR256 is the average of the fair values arrived based on these historical multiples. Cash and cash equivalents of INR24bn (INR160/share), as on Mar14, is likely to restrict the downside in stock. We upgrade our rating to Buy, as the recent correction in the stock price discounts the weak outlook for ore prices.

Source : Equity Bulls

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