MOIL Limited: IPO Fact Sheet - Sharekhan

Company background

Incorporated during the British Raj in 1896, MOIL - a "Mini Ratna" - is the largest producer of manganese ore in India. In 2008 MOIL accounted for 50% of the total volume of manganese ore produced in the country. MOIL is also one of the lowest cost producers of manganese ore in the world.

In addition to medium-grade manganese ore, MOIL produces manganese dioxide and chemical grade manganese ore. According to the JORC code (Australian code for reporting mineral resources and ore reserves) report prepared by IMC – SRG Consulting (P) Ltd dated October 30, 2010, MOIL has access to 21.7 million tonne of proved and probable reserves. Further, of its proved and probable manganese ore reserves, 55% reserves have average manganese content of 40% or higher and 27.5% have an average manganese content ranging from 36.0% to 39.9%.

MOIL currently operates seven underground mines and three opencast mines across Maharashtra and Madhya Pradesh. MOIL also operates two wind farms with an aggregate capacity of 20MW located at Nagda hills and Ratedi hills near Dewas in Madhya Pradesh.

Key Strength:

- Leading producer of manganese ore... MOIL is the largest producer of manganese ore in India. It accounted for about 50% of the total manganese ore production in FY2008. The company intends to increase its production from 1.09 million tonne per annum (mtpa) in FY2010 to 1.5mtpa by FY2015-16.

- Domestic demand for manganese ore to grow at 9% during FY2010-12: The steel industry is the major consumer of manganese. Different grades of steel require different amount of manganese. On an average, one tonne of steel requires about 30kg of manganese. Going forward, as per CARE Research, the domestic demand for manganese ore is expected to grow at a CAGR of about 9% to reach 4.1mtpa by FY2012.

- Forward integration to augur well for growth going forward... MOIL has entered into 50:50 joint ventures with SAIL on February 11, 2008 and RINL on May 7, 2009 for setting up ferromanganese and silicomanganese plants. The forward integration would help move the company up the value chain as well as put it in a better position to tap the demand in the growing domestic steel industry.

- Strong financials and healthy cash reserves… MOIL is a debt-free company, with the strong cash balance stood at Rs17.6bn, which translates into Rs105 per share. It has witnessed revenue and PAT CAGR of 31% and 42% respectively, over the last four years. Presently, it is enjoying OPM of 70.3% and PAT margin of 52.1%.

Risks & concerns

Regulatory change: The Mines and Minerals (Development and Regulation) Bill, 2010 has been proposed to replace the Mines and Mineral Development and Regulation Act, 1957 which may adversely affect the financial performance of the company.

Usage of manganese ore per tonne of steel falling: Over the years, the usage of ferro-manganese per tonne of steel has been coming down. This has been due to technological advancement. The consumption of manganese ore per tonne of steel has come down from 46kg per tonne to around 30kg per tonne currently.

Highly dependent on steel industry: Any downturn in the steel industry would have an adverse impact on the performance of the company. The adverse impact of this over dependence can be seen from the fall in the manganese ore prices in the downturn of 2008.

Valuation: At the issue price band of Rs340- 375, the stock is offered at 12.2x and 13.5x FY2010 earnings. On enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) terms, the stock is offered at 7x and 8x its FY2010 EBITDA. The EV/EBITDA multiple comes down further to 4.9x and 5.7x on TTM EBITDA basis. Moreover, adjusting cash per share of Rs104, the valuation looks more reasonable. We believe that on the back of the strong financials and being the largest player, MOIL is a good bet.

Source : Equity Bulls

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