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MOIL Ltd: A year to forget - Views on News from Equitymaster
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MOIL Ltd: A year to forget
Jun 7, 2012

MOIL Limited has announced its results for the full year ended March 2012. The company has reported a 21.1% YoY decline in net sales and 30.2% YoY decline in net profits for the year ended March 2012. Here is our analysis of the results.

Performance summary
  • The company's topline has declined by 21.1% during FY12 on back of lower prices.
  • Both operating profits and operating margins declined by 43.5% YoY and 19.1% YoY respectively.
  • At the bottomline level, net profits for the year saw a decline of 30.2% YoY while net profit margins declined by 5.9% YoY.
  • The company has announced a final dividend of Rs 3 per share. This is in addition to an interim dividend of Rs 2 per share, thus taking the total dividend to Rs 5 per share for FY12.

Financial performance snapshot
(Rs m) FY11 FY12 Change
Sales 11400 8996 -21.1%
Expenditure 3728 4664 25.1%
Operating profit (EBDITA) 7672 4332 -43.5%
Operating profit margin (%) 67.3% 48.2%  
Other income 1455 2033 39.7%
Depreciation 325 299 -8.0%
Interest 0 0  
Profit before tax 8801 6066 -31.1%
Tax 2921 1959 -32.9%
Profit after tax/(loss) 5880 4107 -30.2%
Net profit margin (%) 51.6% 45.7%  
No. of shares (m)   168.0  
Diluted earnings per share (Rs)   16.0  
P/E ratio (x)   17.0  
(*On a trailing 12-month basis)

What has driven performance in FY12?
  • MOIL Limited has reported a 21.1% YoY decline in net sales for FY12. This was due to lower manganese ore prices which have plummeted by 33% in FY12. Revenues from mining division declined by 23% YoY. Continuous reduction in manganese ore prices has exerted pressure on company's earnings. Continuous imports of manganese in India are putting pressure on ore prices as import of manganese in India has doubled from 0.8 m tonnes in 2010 to 1.6 m tonnes in FY12. Management's strategy of aligning its ore prices to cheap imports effective from last quarter protected its volume to lose against imports. Inventory at the end of FY12 is at 157000 tonnes, mix of both high grade ore and fines.
    Break-up of operating costs
    (Rs m) FY11 FY12 Change
    Raw Materials -317 376 NA
    % of sales -2.8% 4.2%  
    Employee costs 2020 2361 16.8%
    % of sales 17.7% 26.2%  
    Other Expenditure 2025 1927 -4.8%
    % of sales 17.8% 21.4%  
    Total operating expenditure 3728 4664 25.1%
    % of sales 32.7% 51.8%  

  • At the operating level, the company reported an increase in expenditure of 25.1% YoY. As a result operating margin declined by 19.1% YoY. Increase in expenditure was mainly due to the high costs incurred for the expansion of various projects. As the company is planning to increase its production at Dongri Buzurg mine from 0.3 m tonnes to 0.5 m tonnes, it has undertaken more development work at the mine, which has resulted in higher costs for FY12. There was significant increase in raw material cost also.

  • The company's net profit declined by 30.2% YoY. Lower volume growth coupled with lower realisations led to decline in net profit. However decline in net profits was cushioned due to higher other income. Other income for the full year grew by 39.7% YoY.

  • MOIL expects to increase capex to Rs 2.1 bn (including JVs) as against Rs 500 m in FY12. Company was granted prospecting license (PL) for 597 hectares of land (out of the 814 hectares reserved for MOIL) and has 2 years to get ML on this area. The total leased area is nearly 1796 hectares and has a mine life of over 50 years.

What to expect?
The company has increased prices after five straight quarterly declines on expectation demand for the steelmaking material will rebound as lower interest rates spur spending. The state-run company, which supplies 40% of India’s manganese demand, raised prices by as much as 12% for the three months ending June (1QFY13). Further, recent increase in global manganese ore prices (BHP raised prices for May-June shipments and Chinese port inventories have declined) and Rupee depreciation should help support domestic manganese ore prices. The management has given volume guidance for FY13 and FY14 as at 1.15 m tonnes and 1.2 m tonnes.

At the current price of Rs 274, the stock trades at around 1.38 times our estimated FY14 book value. We maintain our positive view on the stock.

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