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Flat top-line performance: For 3QFY2011, MOIL reported 1.9% yoy growth in net
sales to `253cr, mainly due to higher revenue from the mining segment, which
increased by 3.8% yoy to `239cr (94% of MOIL’s net sales). The company’s
manganese ore sales volume stood at 239,000 tonnes and average blended
realisations stood at `10,005/tonne. For 4QFY2011, MOIL has lowered its prices
for some grades of manganese ore and expects realisations to remain flat qoq on
account of improvement in its product mix.
Margin expands by 128bp yoy: While raw-material costs declined, other
expenditure increased by 61.8% yoy to `48cr (18.8% of net sales in 3QFY2011
compared to 11.8% of net sales in 3QFY2010). Thus, EBITDA grew by 4.0% yoy
to `161cr, as EBITDA margin improved by 128bp yoy to 63.5%. Depreciation
expense during the quarter increased by 15.5% yoy to `7cr, while other income
declined by 4.5% yoy to `34cr. Consequently, net profit grew by 2.9% yoy to
`125cr in 3QFY2011.
Outlook and valuation: We have lowered our realisation estimates for FY2012 as
we now expect manganese ore prices to remain flat in FY2012. The company is
expanding its production capacity at existing mines to 1.5mn tonnes by CY2015
from 1.1mn tonnes currently. Given the strong profitability levels, high free cash
flows and current cash levels of `1,800cr (`107/share), we recommend
Accumulate on the stock with a Target Price of `426 (earlier `461), valuing it at
5.5x FY2012E EV/EBITDA.
Margin expands by 128bp yoy
Raw-material costs remained muted during the quarter; however, other
expenditure increased by 61.8% yoy to `48cr (18.8% of net sales in 3QFY2011
compared to 11.8% of net sales in 3QFY2010). Thus, EBITDA margin improved by
128bp yoy to 63.5%, which resulted in 4.0% yoy growth in EBITDA to `161cr.
Depreciation expense increased by 15.5% yoy to `7cr, while other income declined
by 4.5% yoy to `34cr. As a result, net profit grew by 2.9% yoy to `125cr.
Key conference call takeaways
MOIL’s sales volumes in 3QFY2011 stood at 239,000 tonnes of manganese
ore. The company guided that it will achieve its target of 1.15mn tonnes of
manganese ore in FY2011, which indicates that 4QFY2011 production would
be ~411,000 tonnes as per our estimates.
MOIL’s stripping ratio in its open cast mine currently stands at 1:9.
The company targets production of 1.5mn tonnes and 2.0mn–2.5mn tonnes
of manganese ore by CY2015 and CY2020, respectively.
MOIL has slightly lowered its prices for some grades of manganese ore for
4QFY2011. However, the company expects realisations to remain flat qoq on
account of improvement in its product mix.
MOIL aims to spend capex of `800cr on mine development, with majority of
the capex lined up post FY2012.
The company’s cash balance as on December 31, 2011, stood at `1,800cr
(`107/share).
Investment rationale
Production capacity expansion of existing mines
MOIL has undertaken expansion plan at its existing mines to augment its
production capacity to 1.5mn tonnes by CY2015 from 1.1mn tonnes currently.
Adding value-added capacity through JVs
Currently, MOIL has beneficiation plants of 0.4mn tonnes at Dongri Buzurg mine
and of 0.5mn tonnes at Balaghat mine to upgrade the quality of ore produced.
MOIL intends to expand its value-added capacity and, thus, has entered into JVs
with SAIL and Rashtriya Ispat Nigam Ltd. (RINL) to set up two ferro-alloy plants in
Chhattisgarh and Andhra Pradesh. The proposed installed capacity in case of the
JV with SAIL is 1,06,000 tonnes and that in case of RINL is 57,500 tonnes.
The plants are expected to be commissioned by June–July 2012.
Key mines have lower operating cost
Dongri Buzurg (the second-largest mine with manganese content of 42%) has the
lowest cost of production at `1,188/tonne, as it is a fully mechanised open cast
mine. Balaghat mine’s (underground mine with manganese content of 40%) cost
of production is close to MOIL’s average operating cost.
Ukwa (underground mine), which has the longest mine life, has the highest
operating cost of `3,940/tonne.
Nevertheless, given the current blended realisation of ~`10,000/tonne, we expect
MOIL to generate strong free cash flows in FY2012.
MOIL’s ore quality is of medium-high grade
High-grade ore (manganese content >44%) is used in the production of ferro
manganese, medium-grade ore (manganese content >30% and <44%) is used in
the production of silico-manganese and low-grade ore (manganese content
<30%) is used for producing pig iron.
Mines at MOIL have medium-high grade ore, with Dongri Buzurg having the
highest manganese content of 42%, followed by Balaghat with 40% manganese
content.
Outlook and valuation
MOIL accounts for nearly 50% of India’s manganese ore production. The company
is expanding its production capacity at existing mines to 1.5mn tonnes by CY2015
from 1.1mn tonnes currently. Given the strong profitability levels, high free cash
flows, current cash levels of `1,800cr (`107/share), we recommend Accumulate
on the stock with a Target Price of `426 (earlier `461), valuing it at 5.5x FY2012E
EV/EBITDA.
We have slightly lowered our net sales estimates for FY2012 as we now expect
manganese ore prices to remain flat during FY2012. Our FY2012 profitability
estimates are revised downwards on account of downward revision in manganese
ore prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MOIL – 3QFY2011 Result Update
Angel Broking recommend Accumulate on MOIL with a Target Price of Rs. 426
Flat top-line performance: For 3QFY2011, MOIL reported 1.9% yoy growth in net
sales to `253cr, mainly due to higher revenue from the mining segment, which
increased by 3.8% yoy to `239cr (94% of MOIL’s net sales). The company’s
manganese ore sales volume stood at 239,000 tonnes and average blended
realisations stood at `10,005/tonne. For 4QFY2011, MOIL has lowered its prices
for some grades of manganese ore and expects realisations to remain flat qoq on
account of improvement in its product mix.
Margin expands by 128bp yoy: While raw-material costs declined, other
expenditure increased by 61.8% yoy to `48cr (18.8% of net sales in 3QFY2011
compared to 11.8% of net sales in 3QFY2010). Thus, EBITDA grew by 4.0% yoy
to `161cr, as EBITDA margin improved by 128bp yoy to 63.5%. Depreciation
expense during the quarter increased by 15.5% yoy to `7cr, while other income
declined by 4.5% yoy to `34cr. Consequently, net profit grew by 2.9% yoy to
`125cr in 3QFY2011.
Outlook and valuation: We have lowered our realisation estimates for FY2012 as
we now expect manganese ore prices to remain flat in FY2012. The company is
expanding its production capacity at existing mines to 1.5mn tonnes by CY2015
from 1.1mn tonnes currently. Given the strong profitability levels, high free cash
flows and current cash levels of `1,800cr (`107/share), we recommend
Accumulate on the stock with a Target Price of `426 (earlier `461), valuing it at
5.5x FY2012E EV/EBITDA.
Result highlights
Flat top-line performance
During 3QFY2011, MOIL’s manganese ore sales volume stood at 239,000 tonnes
and average blended realisations for the quarter stood at `10,005/tonne. Thus,
revenue from the mining segment grew by 3.8% yoy to `239cr (94% of MOIL’s net
sales) in 3QFY2011, which led to top-line growth of 1.9% yoy to `253cr.
Margin expands by 128bp yoy
Raw-material costs remained muted during the quarter; however, other
expenditure increased by 61.8% yoy to `48cr (18.8% of net sales in 3QFY2011
compared to 11.8% of net sales in 3QFY2010). Thus, EBITDA margin improved by
128bp yoy to 63.5%, which resulted in 4.0% yoy growth in EBITDA to `161cr.
Depreciation expense increased by 15.5% yoy to `7cr, while other income declined
by 4.5% yoy to `34cr. As a result, net profit grew by 2.9% yoy to `125cr.
Key conference call takeaways
MOIL’s sales volumes in 3QFY2011 stood at 239,000 tonnes of manganese
ore. The company guided that it will achieve its target of 1.15mn tonnes of
manganese ore in FY2011, which indicates that 4QFY2011 production would
be ~411,000 tonnes as per our estimates.
MOIL’s stripping ratio in its open cast mine currently stands at 1:9.
The company targets production of 1.5mn tonnes and 2.0mn–2.5mn tonnes
of manganese ore by CY2015 and CY2020, respectively.
MOIL has slightly lowered its prices for some grades of manganese ore for
4QFY2011. However, the company expects realisations to remain flat qoq on
account of improvement in its product mix.
MOIL aims to spend capex of `800cr on mine development, with majority of
the capex lined up post FY2012.
The company’s cash balance as on December 31, 2011, stood at `1,800cr
(`107/share).
Investment rationale
Production capacity expansion of existing mines
MOIL has undertaken expansion plan at its existing mines to augment its
production capacity to 1.5mn tonnes by CY2015 from 1.1mn tonnes currently.
Adding value-added capacity through JVs
Currently, MOIL has beneficiation plants of 0.4mn tonnes at Dongri Buzurg mine
and of 0.5mn tonnes at Balaghat mine to upgrade the quality of ore produced.
MOIL intends to expand its value-added capacity and, thus, has entered into JVs
with SAIL and Rashtriya Ispat Nigam Ltd. (RINL) to set up two ferro-alloy plants in
Chhattisgarh and Andhra Pradesh. The proposed installed capacity in case of the
JV with SAIL is 1,06,000 tonnes and that in case of RINL is 57,500 tonnes.
The plants are expected to be commissioned by June–July 2012.
Key mines have lower operating cost
Dongri Buzurg (the second-largest mine with manganese content of 42%) has the
lowest cost of production at `1,188/tonne, as it is a fully mechanised open cast
mine. Balaghat mine’s (underground mine with manganese content of 40%) cost
of production is close to MOIL’s average operating cost.
Ukwa (underground mine), which has the longest mine life, has the highest
operating cost of `3,940/tonne.
Nevertheless, given the current blended realisation of ~`10,000/tonne, we expect
MOIL to generate strong free cash flows in FY2012.
MOIL’s ore quality is of medium-high grade
High-grade ore (manganese content >44%) is used in the production of ferro
manganese, medium-grade ore (manganese content >30% and <44%) is used in
the production of silico-manganese and low-grade ore (manganese content
<30%) is used for producing pig iron.
Mines at MOIL have medium-high grade ore, with Dongri Buzurg having the
highest manganese content of 42%, followed by Balaghat with 40% manganese
content.
Outlook and valuation
MOIL accounts for nearly 50% of India’s manganese ore production. The company
is expanding its production capacity at existing mines to 1.5mn tonnes by CY2015
from 1.1mn tonnes currently. Given the strong profitability levels, high free cash
flows, current cash levels of `1,800cr (`107/share), we recommend Accumulate
on the stock with a Target Price of `426 (earlier `461), valuing it at 5.5x FY2012E
EV/EBITDA.
We have slightly lowered our net sales estimates for FY2012 as we now expect
manganese ore prices to remain flat during FY2012. Our FY2012 profitability
estimates are revised downwards on account of downward revision in manganese
ore prices.
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