Visit http://indiaer.blogspot.com/ for complete details �� ��
Introduction
MOIL is India's largest producer of manganese (Mn) ore by volume with
1.1mt production in FY10, CAGR of 6% over FY06-FY10 and as on October
1, 2010, MOIL has access to 21.7mt of proved and probable reserves with
high to medium grade ore. With more than four decades of mining experience,
MOIL has been consistently outperformed its benchmarks - rarity in Indian
public sector.
Investment thesis
Pure manganese play
MOIL is a unique investment proposal in the global mining sector as it is the
pure manganese play other than OMH Holdings Ltd. and vertically integrated
miner with a smelting and marketing business. MOIL has a mining operations
and ferro alloy smelting operations in India.
Moving up the value chain
MOIL is aiming to become a vertically-integrated manganese ore producer,
by leveraging the midstream and downstream capabilities through
beneficiation and value-added production plants, together with use of captive
power generation.
Strong cash flows
MOIL location and cost competitive operations delivers high PAT margins in
the range of ~47%. With capex of INR7.8bn spread over next five years,
MOIL will generate huge free cash flows with cash equivalents of INR143 per
share as on FY12e end.
Valuations and outlook
MOIL issue is priced at 4.2x EV/EBITDA on the higher price band of INR375.
Considering the pure manganese play, moving up the value chain and better
visibility of manganese consumption growth in India, MOIL should trade at
premium to global mining companies. We value MOIL at 6x FY12e EBITDA
at INR475 per share and we strongly recommend Subscribe to the IPO.
MOIL - Introduction and history
With more than four decades of mining experience since incorporation, MOIL is
India’s largest producer of Mn ore by volume with 1.1mt production in FY10, CAGR
of 6% over FY06-FY10. MOIL currently operates ten mines (seven underground and
three opencast mines) and is actively involved in exploration and development activities
with a view to increasing proved manganese ore reserves. As on Sep 30th 2010,
MOIL has access to 21.7mt of proved and probable reserves with high to medium
grade ore and in addition, an area of 814.7hectares in Maharashtra has been reserved
for MOIL. MOIL has beneficiation plants at largest mines, Balaghat and Dongri Buzurg,
to upgrade the quality of Mn ore produced to sell and for captive usage in the
manufacturing of value-added products such as high carbon ferro manganese (HCFM)
and electrolytic manganese dioxide (EMD). MOIL operates two wind farms with an
aggregate capacity of 20mw located at Nagda Hills and Ratedi hills near Dewas in
Madhya Pradesh. MOIL future strategy is to deliver higher forward-integration by
expanding midstream and downstream capabilities through beneficiation and valueadded
production plants, while benefiting from captive power generation. As of Sep
30th 2010, processing capacity at Balaghat and Dongri Buzurg mines was 500ktpa
and 400ktpa respectively. MOIL has entered into JV with SAIL and RINL to set up ferro
alloy plants - 51ktpa FeMn and 112.5ktpa SiMn - in Chhattisgarh and Andhra Pradesh
respectively. MOIL accrues its 100% revenues from Indian ferro alloy producers.
Future Mn ore supplies facing strong pressures
Many steel-making countries do not possess manganese ore resources. USA and China
has lean grade reserves and potentially high extraction costs. Despite having large
ore reserves, countries such as the Ukraine import high grade ore which is used to
enrich their low grade ore production. This leads to active global trade in Mn ore and
Mn alloys between countries.
Stable to increasing pricing outlook
Mn ore prices crashed in 1HCY09 to USD3.50/dmtu, below the marginal cost of
production of some producers after peaking at USD18/dmtu in CY08. Prices have
rebounded to towards ~USD6.5/dmtu with the rebound in steel production growth.
Considering the steel growth forecast, we are forecasting USD7/dmtu in CY11 and
USD7.50/dmtu in CY12e.
Investments towards production growth and value addition
MOIL is striving to maintain its leadership position in the Indian manganese ore
market by increasing production capacity in line with demand growth, expanding on
value-added product line to capture industry trends, controlling costs and strengthening
relationships with the customers. In addition, MOIL have also entered into two JVs,
with SAIL and RINL, to set up ferro alloy plants in Chhattisgarh and Andhra Pradesh,
respectively, which are expected to produce ferro manganese and silico manganese,
in order to secure further potential sources of demand for Mn ore and to capture a
larger part of the value chain from the sale of these value-added products.
Locational advantage is huge
Indian steel production is expected to grow at 9% CAGR over FY10-15 and
corresponding Mn ore requirement will grow by 12% taking India from surplus to
deficit. This places MOIL, domestic consumption focused company, at very huge
locational advantage over its global peers who are export dependant. Further, ferro
alloy production JVs with SAIL and RINL for captive Mn ore consumption and SAIL’s
expansion plans gives strong sales volumes visibility in long term. Also, as per Indian
trade policy, Mn ore with less than10% Mn content is allowed to be imported at zero
import duty while exports of greater than 46% Mn content ore are not allowed.
Exports are allowed only either through MMTC (Minerals and Metals Trading
Corporation) or through MOIL (for manganese ore produced in MOIL) mines under
the State Trading Enterprise policy.
Valuation and outlook
MOIL issue is priced at 4.2x EV/EBITDA on the higher price band of INR375.
Considering the pure manganese play, moving up the value chain and better visibility
of manganese consumption growth in India, MOIL should trade at premium to global
mining companies. We value MOIL at 6x FY12e EBITDA at INR475 per share and we
strongly recommend Subscribe to the IPO.
Risks to the outlook
Mining operations in India are highly regulated and any adverse policy measures
related to approvals or increase in mining royalties, cess or profit sharing will impact
the earnings adversely.
Prices and sales volumes forMn ore is dependent on the steel industry, and any decrease
in such demand or prices could adversely affect earnings.
Future earnings are highly dependant on successfully exploiting existing reserves and
acquire and develop additional reserves.
No comments:
Post a Comment