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MOIL Ltd Overweight
MOIL.BO, MOIL IN
Reading the leaves: Mn ore price recovery?
Investor concerns about MOIL given the steep price correction in global
manganese ore (down 60% from Aug-10 peak) and threat from cheaper
imports has led to the decline in share price. Weak domestic steel demand
(4.5%/7% in FY12E/FY13E, in our view) could keep volumes muted in the
near term. We are cutting our EPS by 30%/27% in FY12E/13E as we assume
a 22% lower realizations y/y in FY12E (vs. -10% previously) given a slower
than expected improvement in Mn ore market and possible pricing recovery
likely in 2012 (flat prices in 3QFY12E and modest improvement in
4QFY12E).
Waiting for Mn ore price recovery: Global miners have kept Mn ore
prices unchanged over the last 4-5 months stabilizing at $5.4/dmtu.
Inventories at Chinese ports have steadily declined from the peak of 4MT in
May to ~3.5MT as inquiries have increased recently. Chinese domestic
ferro-alloy market has shown an upward trend with prices of FeMn up
~10% since July. However, lower production due to power restriction in
Southern China has led to lower import offers in this sub region. On supply
side, the current price levels have reduced production from higher cost
mines (smaller Australian and South African mines have avg cash cost of
$5-5.5/dmtu).
Volume- Late steel cycle play: Sales volume in 1QFY12 was impacted by
price differential between domestic and imported ore. In our view, the weak
end market demand could keep volumes muted in the near-term despite
prices at par with imported Mn ore. We expect steel demand growth to
remain anemic (YTD +1.3% y/y) and given the exiting inventory, expect flat
volumes y/y in FY12E (1HFY12 volumes likely -10%y/y).
Mn ore price recovery - A key catalyst: The stock has declined ~20%
since mid-Jul and at 3.7x FY13E EV/EBITDA, we believe MOIL remains
attractive given its low cost of production and a robust balance sheet (FY11
net cash ~40% of Mcap). We see upside in MOIL from two key catalysts: a)
signs of Mn ore price increase (1% change in Mn ore realization impacts
EBITDA by 1.4%) and b) improvement steel demand and therefore, MOIL’s
offtakes. Key risks are slow recovery in Chinese demand and delay in
improvement of Mn ore prices; and lower volume trend in a weak domestic
steel environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MOIL Ltd Overweight
MOIL.BO, MOIL IN
Reading the leaves: Mn ore price recovery?
Investor concerns about MOIL given the steep price correction in global
manganese ore (down 60% from Aug-10 peak) and threat from cheaper
imports has led to the decline in share price. Weak domestic steel demand
(4.5%/7% in FY12E/FY13E, in our view) could keep volumes muted in the
near term. We are cutting our EPS by 30%/27% in FY12E/13E as we assume
a 22% lower realizations y/y in FY12E (vs. -10% previously) given a slower
than expected improvement in Mn ore market and possible pricing recovery
likely in 2012 (flat prices in 3QFY12E and modest improvement in
4QFY12E).
Waiting for Mn ore price recovery: Global miners have kept Mn ore
prices unchanged over the last 4-5 months stabilizing at $5.4/dmtu.
Inventories at Chinese ports have steadily declined from the peak of 4MT in
May to ~3.5MT as inquiries have increased recently. Chinese domestic
ferro-alloy market has shown an upward trend with prices of FeMn up
~10% since July. However, lower production due to power restriction in
Southern China has led to lower import offers in this sub region. On supply
side, the current price levels have reduced production from higher cost
mines (smaller Australian and South African mines have avg cash cost of
$5-5.5/dmtu).
Volume- Late steel cycle play: Sales volume in 1QFY12 was impacted by
price differential between domestic and imported ore. In our view, the weak
end market demand could keep volumes muted in the near-term despite
prices at par with imported Mn ore. We expect steel demand growth to
remain anemic (YTD +1.3% y/y) and given the exiting inventory, expect flat
volumes y/y in FY12E (1HFY12 volumes likely -10%y/y).
Mn ore price recovery - A key catalyst: The stock has declined ~20%
since mid-Jul and at 3.7x FY13E EV/EBITDA, we believe MOIL remains
attractive given its low cost of production and a robust balance sheet (FY11
net cash ~40% of Mcap). We see upside in MOIL from two key catalysts: a)
signs of Mn ore price increase (1% change in Mn ore realization impacts
EBITDA by 1.4%) and b) improvement steel demand and therefore, MOIL’s
offtakes. Key risks are slow recovery in Chinese demand and delay in
improvement of Mn ore prices; and lower volume trend in a weak domestic
steel environment.
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