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MOIL Ltd: Profits tank on low prices
Feb 8, 2012

MOIL Limited has announced its results for the quarter ended December 2011(3QFY12). The company has reported a 5.4% YoY decline in net sales and 19.5% YoY decline in net profits for the quarter ended December 2011. Here is our analysis of the results.

Performance summary
  • The company's topline declined by 5.4% YoY during the quarter ended December 2011.
  • Both operating profits and operating margins declined by 32.5% YoY and 17.7% YoY respectively.
  • At the bottomline level, net profits for the quarter saw a decline of 19.5% YoY while net profit margins declined by 7.4% YoY.
  • For the nine months ended December 2011, net sales declined by 21.4% YoY and net profits declined by 31.7% YoY.


Financial performance snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 2532 2395 -5.4% 8882 6980 -21.4%
Expenditure 924 1310 41.8% 2807 3507 24.9%
Operating profit (EBDITA) 1608 1085 -32.5% 6075 3473 -42.8%
Operating profit margin (%) 63.5% 45.3%   68.4% 49.8%  
Other income 337 498 47.8% 951 1405 47.8%
Depreciation 74 73 -1.4% 207 214 3.5%
Interest 0 0   0 0  
Profit before tax 1871 1511 -19.3% 6819 4663 -31.6%
Tax 622 505 -18.8% 2262 1549 -31.5%
Profit after tax/(loss) 1250 1006 -19.5% 4557 3115 -31.7%
Net profit margin (%) 49.4% 42.0%   51.3% 44.6%  
No. of shares (m)         168.0  
Diluted earnings per share (Rs)         18.5  
P/E ratio (x)         14.6  
* On a trailing 12 months basis

What has driven performance in 3QFY12?
  • MOIL Limited has reported a 5.4% YoY decline in net sales for the quarter ended December 2011. This was due to lower manganese ore prices. Production of manganese ore declined by 6% as compared to the same quarter previous year. Revenues from mining division declined by 9% YoY. There is excess supply of manganese ore in the world while demand (especially from steel sector) has remained fairly subdued, forcing the company to cut manganese ore prices. Globally, total production for manganese ore increased by 33% for the quarter, but the demand from steel industry increased only by 5% for the same period.

    Break-up of operating costs
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw Materials -206 164 NA -76 358 NA
    % of sales -8.1% 6.8%   -0.9% 5.1%  
    Employee costs 553 576 4.2% 1475 1733 17.5%
    % of sales 21.8% 24.1%   16.6% 24.8%  
    Royalty and cess 102 88 -13.3% 340 254 -25.3%
    % of sales 4.0% 3.7%   3.8% 3.6%  
    Other Expenditure 476 482 1.3% 1069 1163 8.8%
    % of sales 18.8% 20.1%   12.0% 16.7%  
    Total operating expenditure 924 1310 41.8% 2807 3507 24.9%
    % of sales 36.5% 54.7%   31.6% 50.3%  

  • At the operating level, the company reported an increase in expenditure of 41.8% YoY. As a result, operating margin declined by 17.7% YoY. Increase in expenditure was mainly due to the high costs incurred for the expansion of various projects. There was significant increase in raw material cost also.

  • The company's net profit declined by 19.5% YoY. Lower volume growth coupled with lower realisations led to decline in net profit. Average realisation for the quarter stood around Rs 8000 per metric tonne.

  • The company has declared an interim dividend of Rs 2 per share for financial year 2011-12.

What to expect?
The company has already cut manganese ore prices by 5% to 20% for the fourth quarter of FY12. So going forward there are less chances of further price cuts. The expansion projects undertaken by the company are running on schedule. The joint venture between MOIL and <>Steel Authority of India (SAIL) is going slow due to price differences but the management believes that the matter will be resolved soon and both the parties are expected to start negotiations soon.

At the current price of Rs 262, the stock trades at around 1.32 times our estimated FY14 book value. We maintain our positive view on the stock.

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