Subscribe to MOIL IPO - Very Attractively Priced - ideas1st Research

MOIL is one of the biggest producers of Manganese ore globally and biggest in India, accounting for around half of the country's manganese ore production. Manganese being an irreplaceable input in steel making and given its limited recyclability enjoys higher price inelasticity that other metals. Further, with disproportionate consumption by China and with India fast following its footsteps would ensure that the high growth in demand is maintained. Other factors like low per capita consumption, fast growing per capita income, rapid industrialization & urbanization of developing Asia that houses over half of the world's population will further add to the demand pressure.

Moreover, with limited availability of quality manganese mines in Central, East & South Asia, MOIL enjoys huge advantage from its vantage location, making it competitive against other global players incurring huge transportation costs and also against other regional cost incurring much higher manufacturing cost given the low grade of their manganese ore. The supply constraints in other major manganese producing countries, due to infrastructural bottlenecks and currency appreciation in South Africa and political instability are auguring well for the company. With favorable demand – supply gap & being the only major quality manganese miner in the country, MOIL enjoys considerable pricing power.

While the company's aggressive expansion & forward integration plans would boost its top & bottom line, its robust balance sheet would provide it the necessary support and resources for global expansion in case of an attractive opportunity.

Valuation

We valued the stock at Rs 639.5 using comparative multiple of similar global companies. Assuming the issue price of 375, this implies a P/E of 8.6 based on FY10 earning, 5.82 based on FY11 earning, 5.05 based on FY12 earning and EV/EBITDA of 6.57 based on FY10 earning, 3.94 based on FY11 earning and 2.85 based on FY12 earning. We believe the company deserves a much higher valuation given that its access to quality mines in a deficit market, its stable earnings, strong balance sheet and attractive return ratios. We recommend investors to subscribe to the offer.

Source : Equity Bulls

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