MOIL- to apply or not? Subscribe Says Way2Wealth

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A “Mini-Ratna” company, Manganese Ore India Ltd. (MOIL), is the largest
producer of manganese ore by volume in India and is one of the largest in
the world. Its manganese ore production has increased from 864,890 ton in
FY06 to 1,093,363 ton in FY10. They currently operate 7 underground
mines (Kandri, Munsar, Beldongri, Gumgaon, Chikla, Balaghat and Ukwa
mines) 3 opencast mines (Dongri Buzurg, Sitapatore/Sukli, and Tirodi).


Investment Rationale
�� Largest producer of manganese ore in India with access to significant
reserves: MOIL has over four decades of experience in manganese ore
mining operations. It has access to 21.7 mn ton of proved and probable
reserves and a total of 69.5 mn ton of measured, indicated and
inferred mineral resources of manganese ore. 55% of its proved and
probable manganese ore reserves, as of October 1, 2010, have average
manganese content of 40% or higher.

�� It enjoys a near monopoly with a dominant 50% share in the domestic
manganese production and is also one of the lowest cost producers of
manganese ore in the world.

�� Well positioned to capture the growth potential of the Indian steel
industry: Demand for manganese ore and Ferro alloys has increased
considerably due to the increase in the production of steel. The Indian
steel industry has continued to advance on a growth trajectory and it is
anticipated that by FY11-12, the crude steel production capacity in
India will be nearly 124 mn ton (Source: Ministry of Steel, Annual
Report 2009-2010).

�� Healthy financials: It is completely debt free and has a healthy
balance sheet with strong cash flows. As on H1FY11, its cash balance
stood at Rs 1762.8 cr, which is ~ Rs 105/share. Its revenue and PAT
have grown at a CAGR of 31% and 42% respectively over FY06-10.
Operating and PAT margin as of H1FY11 stands at impressive 70.4% and
52.1% respectively.

�� They intend to expand their value added production capacity and
have entered into joint ventures SAIL and Rashtriya Ispat Nigam Limited
to set up ferro alloy plants in Chhattisgarh and Andhra Pradesh,
respectively, which are collectively expected to produce ferro
manganese (with a proposed installed capacity of 51,000 TPA) and
silico manganese (with a proposed installed capacity of 112,500 TPA).

�� The products are sold through their sales and marketing division to
their customers primarily pursuant to quarterly sales contracts. All of
their production is sold in the domestic market due to the large
demand from the Indian manufacturers.

�� Their key customers include Maharashtra Elektrosmelt Limited and
Bhilai Steel Plant are a subsidiary and a division of SAIL respectively
and which together accounted for 22.1% of their manganese ore sales
in FY10. Top ten customers represented approximately 51.5% of their
sales of manganese ore for FY10.

Valuation and Investment Argument: At the offer price bands, the issue is
quoting at a P/E of 8.6-9.5 its annualized H1FY11 earnings. Robust demand
for manganese ore resulting from healthy growth in the domestic steel
production gives clear and sustainable revenue visibility. Being the largest
and lowest cost producer of manganese ore in India along with its low cost
competitive advantage puts the Company is a sweet spot. Robust cash
flows, debt free status and high return ratios makes the issue attractive.
We thus recommend a SUBSCRIBE for the issue for a longer term
perspective.