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MOIL Ltd: Both volumes and realizations fall - Views on News from Equitymaster
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MOIL Ltd: Both volumes and realizations fall
Jun 26, 2015

MOIL Limited has announced its results for the quarter ended March 2015. The company has reported a 44.7% YoY fall in net sales while profits have fallen 31.4% YoY for the quarter ended March 2015. Here is our analysis of the results.

Performance summary
  • The company's top-line has declined by 44.7% YoY in 4QFY15. The average realization declined by 1.4% YoY to Rs 8,233 per ton during FY15.
  • Operating profits fell by 53.8% YoY. Operating margins for the quarter stood at 46.8% as compared to 56.0% in 4QFY14.
  • At the bottom-line level, net profits declined by 31.4% YoY due to poor operating performance. However, adjusting for one time exceptional write back, profits fell by 47.7% YoY.
  • The board has declared a final dividend of Rs 3.5 per share for the fiscal under consideration. This is in addition to the interim dividend of Rs 5 already paid earlier in the year. As such, total dividend for the year stands at Rs 8.5 per share.

Financial performance snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Sales 2,920 1,614 -44.7% 10,213 8,233 -19.4%
Expenditure 1,286 859 -33.2% 5,201 4,442 -14.6%
Operating profit (EBDITA) 1,634 755 -53.8% 5,012 3,790 -24.4%
Operating profit margin (%) 56.0% 46.8%   49.1% 46.0%  
Other income 700 742 6.1% 2576 2922 13.4%
Depreciation 95 167 76.2% 352 451 28.1%
Provisions no longer required  0 244 NA 457 244 -46.6%
Interest 0 0 NA 0 0 NA
Profit before tax 2,239 1,574 -29.7% 7,693 6,506 -15.4%
Tax 745 549 -26.3% 2598 2226 -14.3%
Profit after tax/(loss) 1,494 1,025 -31.4% 5,096 4,280 -16.0%
Net profit margin (%) 51.1% 63.5%   49.9% 52.0%  
No. of shares (m)          168  
Diluted earnings per share (Rs)         25.5  
P/E ratio* (x)         9.8  
* On a trailing 12 months basis

What has driven performance in 4QFY15?
  • MOIL Limited reported a 44.7% YoY fall in net sales in 4QFY15 mainly due to oversupply of manganese ore internationally which put pressure on realizations. The company reported sales volume of 9.1 lakh tons in FY15 as compared to 11.33 lakh tons in FY14. The production figures for FY15 stood at 11.39 lakh tons as compared to 11.35 lakh tons in FY14.

  • At the operating level, during 4QFY15, the profits declined by 53.8% YoY due to a fall in sales.

  • Net profits declined by 31.4% YoY due to base effect. Adjusting for the non-recurring write back on provisions profits declined by 47.7% YoY.
What to expect?
At the current price of Rs 250, the stock is trading at 8.1x and 1x our estimated FY17 EPS and book value respectively. While the production volume was relatively flat, sales volumes were down 19.7% YoY during the year. Oversupply of manganese ore in international markets has put pressure on both volumes and selling prices. Going forward, sales volumes can come under further pressure if threat from cheap imports rises. Nonetheless, given MOIL's market leading status and huge reserve surplus it shall be the biggest beneficiary of the rise in steel demand in the near future once economy revives.

In our report dated 20th August 2014, we had asked subscribers to buy the stock at Rs 250 or lower. Since then due to oversupply in international markets, the stock price has corrected a bit and reached our best buy price. Subsequent to this we revisited our model and had a relook at our estimates. Our calculations reveal that current price has sufficient margin of safety for investors. As a result, we recommend investors to BUY the stock at current levels.

Nonetheless, 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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