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MOIL Ltd: Sales volume decline - Views on News from Equitymaster
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MOIL Ltd: Sales volume decline
Mar 2, 2015

MOIL Limited has announced its results for the quarter ended Dec 2014. The company has reported a 17.2% YoY fall in net sales while profits have fallen at a brisk pace of 31.3% YoY for the quarter ended Dec 2014. Here is our analysis of the results.

Performance summary
  • The company's top-line has declined by 17.2% YoY in 3QFY15. The average realization increased to Rs 8,422 per ton during 9MFY15, up from Rs 8,238 per ton in 9MFY14.
  • Operating profits fell by 24.5% YoY. Operating margins for the quarter stood at 47.3% as compared to 51.9% in 3QFY14.
  • At the bottom-line level, net profits declined by 31.3% YoY due to high base effect (in 3QFY14 profits were boosted by provision write back). However, adjusting for this one time exceptional write back, profits fell by 3.1% YoY.
  • The board has declared an interim dividend of Rs 5 per share for the fiscal under consideration.

Standalone financial results
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Sales 2,636 2,184 -17.2% 7,293 6,619 -9.2%
Expenditure 1,268 1,151 -9.2% 3,915 3,583 -8.5%
Operating profit (EBDITA) 1,368 1,033 -24.5% 3,378 3,035 -10.1%
Operating profit margin (%) 51.9% 47.3%   46.3% 45.9%  
Other income 677 722 6.6% 1876 2180 16.2%
Depreciation 90 94 4.7% 257 284 10.4%
Provisions no longer required  457 0 -100.0% 457 0 -100.0%
Interest 0 0 NA 0 0 NA
Profit before tax 2,413 1,661 -31.2% 5,454 4,932 -9.6%
Tax 837 577 -31.0% 1852 1676 -9.5%
Profit after tax/(loss) 1,576 1,084 -31.3% 3,602 3,255 -9.6%
Net profit margin (%) 59.8% 49.6%   49.4% 49.2%  
No. of shares (m)         168  
Diluted earnings per share (Rs)         19.4  
P/E ratio* (x)         9.9  
* On a trailing 12 months basis

What has driven performance in 3QFY15?
  • MOIL Limited has reported a 17.2% YoY fall in net sales for the quarter ended Dec 2014. On a 9 month basis too revenues were down 9.2% YoY. The company reported sales volume of 7.1 lakh tons in 9MFY15 as compared to 8.05 lakh tons in 9MFY14. The production figures for 9MFY15 stood at 8.22 lakh tons as compared to 7.94 lakh tons in 9MFY14.

  • At the operating level, during 3QFY15, the profits declined by 24.5% YoY due to a fall in sales.

  • Net profits declined by 31.3% YoY due to base effect. Adjusting for the non-recurring write back on provisions profits declined by 3.1% YoY.
What to expect?
While the production was up by 3.5% YoY, sales volumes were down 11.8% YoY during the nine month period. Going forward, sales volumes can come under further pressure despite signs of revival in the steel industry amidst rising threat from cheap imports (heavy imports from Australia and South Africa have created a pricing pressure in the market). It may be noted that about half of India's manganese ore requirements were met through imports last year due to better pricing.

At the current price of Rs 280, the stock is trading at a multiple of 9.9 times its trailing twelve month earnings. Though the company has aggressive expansion plans in place to reach about 2 m tons of production levels by FY20-21 (from 1.1 m in FY14) threat from imports and regulatory risks will continue to remain an overhang.

As a result, we recommend investors to buy the stock at lower levels. We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single midcap stock comprises more than 3% of your portfolio.

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