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MOIL has over four decades of experience in manganese ore
mining operations. 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. MOIL was conferred with ‘Mini Ratna’ status by
Government of India in FY08. A debt-free company, it has a
healthy balance sheet with strong cash flows. As on H1 FY11,
its 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%. We
recommend investors to ‘SUBSCRIBE’ the issue.
Domestic manganese ore industry to touch 4.1mn tpa
Rising ferro alloys production by steel manufacturers has been
driving robust demand for manganese ore. Slower paced growth in
development of mines has resulted in India being a net importer of
manganese ore for the last three years. Domestic manganese ore
demand is expected to witness a 9% CAGR and touch 4.1mn tpa by
FY12E.
Largest producer of manganese ore; high quality reserve base
MOIL operates seven underground and three opencast mines located
in strategic states like Maharashtra and Madhya Pradesh having
access to 21.7mn tons of proved and probable reserves as on
October 1 ’10. In total, it has 69.5mn tons of measured, indicated
and inferred reserves of manganese ore. Around 55% of its proved
and probable manganese ore reserves have average manganese
content of 40% or higher and 27.5% reserves contain 36-39.9%
manganese content. By virtue of producing 1.09mn tons in FY10, it
is the largest producer of manganese in India with a total domestic
production share of 50%. It is also one of the lowest cost producers
of manganese ore at US$17/ton as compared to a high of US$278
per ton incurred by Eurasian Natural Resources Corporation globally
(CARE Research).
Recommend ‘Subscribe’
At the upper end of the price band of Rs340-Rs375, MOIL would
trade at P/E of 9.5x and EV/EBITDA of 5x based on H1 FY11
annualized financials. Given the robust demand outlook for
manganese ore and company-specific positives, a) largest and lowest
cost producer of manganese ore in India with 50% share b) strong
balance sheet (debt free) and c) robust cash flows, we recommend
‘Subscribe’ to the issue.
Company Background
Incorporated in 1962, MOIL is a wholly Government of India owned company which is engaged in
mining operations of manganese ore for over four decades. It has been conferred with ‘Mini Ratna’
status as well. Currently, MOIL operates ten mines, out of which, six mines are located in Nagpur,
Bhandara districts in Maharashtra. The other four mines are located in the Balaghat district of Madhya
Pradesh. Seven mines are underground located at Kandri, Munsar, Beldongri, Gumgaon, Chikla,
Balaghat and Ukwa and three mines are open cast located at Dongri Buzurg, Sitapatore/Sukli, Tirodi. It
sells manganese ore to ferro alloy producers in the Indian market. Key clientele include state entities
like Maharashtra Elektrosmelt Ltd and Bhilai Steel Plant, which are subsidiaries of SAIL (Steel Authority
of India Ltd.), accounting for 22.1% of revenues in FY10. MOIL also diversified into renewable energy
and is the first PSU in India to set up wind farm of 20MW capacity in the Nagda/Ratedi Hills in Madhya
Pradesh.
About the issue
The issue comprises sale of 33.6mn shares by the promoters, Government of India (16.8mn), State
Government of Madhya Pradesh (8.4mn) and State Government of Maharashtra (8.4mn). The offer
constitutes 20% of the paid-up equity capital of MOIL. Being a divestment by the promoters, the
company would not receive any proceeds from the issue.
Future plans
MOIL has planned a capex of Rs840mn for FY11 and Rs1.08bn for FY12 towards development of its
existing mines. It has already spent Rs242mn in H1 FY11.
MOIL has proposed to produce 51,000tpa of Ferro Manganese through a JV with SAIL at
Chhattisgarh. In addition to this, it has signed an agreement with RINL (Rashtriya Ispat Nigam
Ltd.) to produce 112,500tpa of Silico Manganese at Andhra Pradesh.
The company is also looking to acquire mining properties in South Africa, Congo and Turkey, as the
demand for manganese by Indian steel producers is expected to rise in the near future.
Industry overview
Manganese ore is the fourth most utilized metal in the world after iron, copper and aluminum. Its
application is primarily used in production of ferro alloys, dry cell batteries, deoxidant for copper
alloys to improve strength and castability and used in treatment of waste water and purifying
drinking water.
Demand for manganese ore is directly dependent on steel production. Each ton of steel produced
translates into ~30kg of manganese ore requirement.
Over 90% of the world’s production of manganese is used for desulphurization and strengthening of
steel. Domestic steel demand is expected to witness a CAGR of 9.2% from 59.4mn tons in FY10 to
touch ~92mn tons by FY15E.
Globally, India accounts for 3% of 3,200 tons land-based manganese ore. Domestic demand for
manganese ore is expected to clock a CAGR of 9% to touch 4.1mtpa by FY12E (Source: CARE
Research).
Concerns
Any change in pricing regulations, delays in obtaining clearances, and regulatory approvals may
affect company’s operations
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