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MOIL Ltd: Profits up on lower cost
Feb 7, 2013

MOIL Limited has announced its results for the quarter ended December 2012. The company has reported a 4.7% YoY decline in net sales and 11.9% YoY growth in net profits for the quarter ended December 2012. Here is our analysis of the results.

Performance summary
  • The company's topline has declined by 4.7% YoY.
  • Operating profits improved by 4.9% YoY while operating margins improved by 4% YoY.
  • At the bottomline level, net profits increased by 11.9% YoY while net profit margins increased by 8% YoY.
  • For the nine months ended December 2012, net sales increased by 0.3% YoY while net profits increased by 3.3% YoY.
  • The company has declared an interim dividend of Rs 2 per share for the financial year 2012-13.

Financial performance snapshot
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Net sales 2,395 2,283 -4.7% 6,980 7,003 0.3%
Expenditure 1,301 1,134 -12.8% 3,507 3,751 6.9%
Operating profit (EBDITA) 1,095 1,148 4.9% 3,472 3,252 -6.3%
Operating profit margin (%) 46% 50%   50% 46%  
Other income 498 640 28.6% 1,405 1,751 24.6%
Interest (net) - -   - -  
Depreciation 73 84 15.7% 214 242 12.9%
Profit before tax 1,520 1,704 12.2% 4,663 4,761 2.1%
Exceptional Item - -   - -  
Tax 505 569 12.7% 1,549 1,545 -0.3%
Profit after tax/(loss) 1,015 1,136 11.9% 3,114 3,216 3.3%
Net profit margin (%) 42% 50%   45% 46%  
No. of shares (m)         169  
Diluted earnings per share (Rs)         25.0  
P/E ratio (x)*         10.1  
* On a trailing 12 months basis

What has driven performance in 3QFY13?
  • MOIL Limited has reported a 4.7% YoY decline in net sales for the quarter ended December 2012. Production volume for 3QFY13 was 10% higher YoY while sales volume fell by 0.9% YoY. However such higher volumes were loaded with higher proportion of low grade ore and fines. As a result, even after keeping base prices unchanged for 3QFY13, blended ore realizations for 3QFY13 were at Rs 7270 per tonne, 24% lower QoQ. Management’s strategy of aligning its ore prices to cheap imports effective from last quarter protected its volume to lose against imports. Such strategy has allowed the company to sell 10% higher YoY but realizations were hit drastically. Ferro manganese sales declined by 53% YoY and 37% QoQ due to weak demand whereas wind power sales fell by 71.8% QoQ due to seasonality.

    Cost break-up
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Raw Materials 51  77 49.2% 141 183 29.8%
    % of sales 2% 3%   2% 3%  
    (Increase)/Decrease in inventory of finished goods 112 (133) -218.7% 141 183 29.8%
    % of sales 5% -6%   2% 3%  
    Employee costs 567 610 7.6% 1,733 1,845 6.5%
    % of sales 24% 27%   25% 26%  
    Other Expenditure 570 581 2.0% 1,417 1,549 9.3%
    % of sales 24% 25%   20% 22%  
    Total operating expenditure 1,301 1,134 -12.8% 3,507 3,751 6.9%
    % of sales 54% 50%   50% 54%  

  • At the operating level, the company reported a drop in expenditure of 12.8% YoY. As a result operating margin improved by 4% YoY. Other income increased 28.6% YoY to Rs 640 m, due to higher cash and bank balance as well as improved yield on investments. The company’s net profit improved by 11.9% YoY on lower costs and higher other income.

  • Company has Rs 24 bn of cash and cash equivalents as on 3QFY13. With its continued deferment of capex plan and no concrete plans for utilization of cash balance; its ROCE continues to deteriorate. Company generates operating cash flow of Rs 2.5 - 3 bn every year and its capex plans are not more than Rs 2 b.

What to expect?
The company has decreased manganese ore prices by 5% for the Jan-March 2013 quarter. The reduction in the domestic manganese ore prices has been despite a 4% increase in international ore prices. MOIL had formed JVs with SAIL and RINL to setup ferroalloy plants. The RINL JV plan is being revised in light of the acute power shortage in the state of Andhra Pradesh.

At the current price of Rs 252, the stock is trading at a multiple of 10.1 times its trailing twelve month earnings. We maintain our Buy view on the stock.

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