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MOIL Ltd: Higher volumes drive sales growth - Views on News from Equitymaster

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MOIL Ltd: Higher volumes drive sales growth

Aug 23, 2012

MOIL Limited has announced its results for the quarter ended June 2012. The company has reported a 15.5% YoY growth in net sales and 8.7% YoY decline in net profits for the quarter ended June 2012. Here is our analysis of the results.

Performance summary
  • The company's topline has increased by 15.5% YoY, driven by higher volumes.
  • Both operating profits and operating margins declined by 19.3% YoY and 19.1% YoY respectively on back of lower realizations.
  • At the bottomline level, net profits for the year saw a decline of 8.7% YoY while net profit margins declined by 10.9% YoY.

Financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Sales 2101 2426 15.5%
Expenditure 834 1403 68.2%
Operating profit (EBDITA) 1267 1023 -19.3%
Operating profit margin (%) 60.3% 42.2%  
Other income 434 523 20.5%
Depreciation 69 74 6.2%
Interest 0 0  
Profit before tax 1631 1472 -9.8%
Tax 542 477 -11.9%
Profit after tax/(loss) 1089 994 -8.7%
Net profit margin (%) 51.9% 41.0%  
No. of shares (m)   168.0  
Diluted earnings per share (Rs)   25.4  
P/E ratio (x)   10.2  
* On a trailing 12 months basis

What has driven performance in 1QFY13?
  • MOIL Limited has reported a 15.5% YoY increase in net sales for 1QFY13 mainly on account of higher volumes. MOIL's production for 1QFY13 increased 3.2% YoY to 247,276 tonnes, whereas sales volumes grew by 42.5% YoY to 315,587 tonnes leading to inventory liquidation. However, average sales realization declined by 22% YoY to Rs 6,852 per tonne. 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 5% higher QoQ but realizations were not satisfactory.

    Break-up of operating costs
    (Rs m) 1QFY12 1QFY13 Change
    Raw Materials -145 338 NA
    % of sales -6.9% 13.9%  
    Employee costs 553 584 5.5%
    % of sales 26.3% 24.1%  
    Other Expenditure 426 482 13.1%
    % of sales 20.3% 19.9%  
    Total operating expenditure 834 1403 68.2%
    % of sales 39.7% 57.8%  

  • At the operating level, operating profits of the company declined by 19.3% YoY mainly on account of lower manganese ore prices. Staff costs increased 5.5% YoY, whereas other expenses went up 13.1% YoY. Operating margins also declined by 19.1% YoY.

  • The company's net profit declined by 8.7% YoY. Higher expenditure coupled with lower realizations led to decline in net profit. However decline in net profits was cushioned due to higher other income. Other income for the quarter ended June 2012 grew by 20.5% YoY on back of higher cash and bank balance and improved yield on investment.

  • The company has started expanding its existing mines to augment its production capacity to 1.5 m tonne by FY16 from 1.1 m tonne in FY12. Currently, MOIL has beneficiation plants of 0.4 m tonne at Dongri Buzurg mine and of 0.5 m tonne at Balaghat mine to upgrade the quality of ore produced. MOIL intends to expand its value-added capacity and thus has entered into Joint Ventures with Steel Authority of India (SAIL) and Rashtriya Ispat Nigam Limited (RINL) to set up two ferro alloy plants in Chhattisgarh and Andhra Pradesh. The proposed installed capacity in case of the JV with SAIL is 106,000 tonne and that in case of RINL is 57,500 tonne. However the company has highlighted that the progress on JVs has been slow.

What to expect?
Manganese ore prices have declined steadily since January 2011 on account of oversupply in global markets. Continuous imports of manganese in India are putting severe pressure on Ore prices. We believe company's practice of realigning its ore prices to international markets would keep its realizations under pressure. However, since the past three to four months, manganese prices have stabilized in the global markets. Further, the depreciation in the Indian Rupee against the US Dollar has resulted in higher realizations for MOIL in the past two quarters. While monsoons will lead to a decline in volume sequentially, realizations should improve further given the price hike in July (15% increase).

We believe MOIL remains a niche mining company with large high-grade Manganese ore reserves (55% of reserves are >40% grade), low cost of production and a robust balance sheet (Rs 21 bn cash balance). The recent recovery in global Manganese ore pricing drove recent stock outperformance. This, coupled with strong volume growth, should help drive earnings growth for the next couple of years.

At the current price of Rs 258, the stock trades at around 1.5 times our estimated FY15 book value. We maintain our positive view on the stock.

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Mar 22, 2019 11:19 AM