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MOIL Ltd: A poor start to FY16 - Views on News from Equitymaster
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MOIL Ltd: A poor start to FY16
Sep 14, 2015

MOIL Ltd has announced its results for the quarter ended June 2015. The company has reported an 8% YoY fall in net sales while profits have fallen 15.2% YoY. Here is our analysis of the results.

Performance summary
  • The company's top-line has declined by 8% YoY in 1QFY16.
  • Operating profits fell by 16.6% YoY. Operating margins for the quarter stood at 44.5% as compared to 49.1% in 1QFY15.
  • At the bottom-line level, net profits declined by 15.2% YoY largely due to poor operating performance.

Financial performance: A snapshot
Rs m 1QFY15 1QFY16 Change
Sales 2,006 1,846 -8.0%
Expenditure 1,021 1,024 0.3%
Operating Profit (EBITDA) 985 822 -16.6%
Operating Profit Margin (%) 49.1% 44.5%  
Depreciation 88 118 33.8%
Finance cost - -  
Other Income/(Loss) 710 658 -7.3%
Profit Before Tax (PBT) 1,607 1,362 -15.2%
Tax 546 463 -15.2%
Profit after Tax (PAT) 1,061 899 -15.2%
Net Profit Margin 52.9% 48.7%  
No. of shares (m)   168.0  
Diluted earnings per share (Rs)   24.5  
P/E ratio (x)*   8.3  
*On a trailing 12 months basis

What has driven performance in 1QFY16?
  • MOIL Ltd reported an 8% YoY fall in net sales in the quarter due to weakness in both the mining segment as well as the manufactured product segment. Significant oversupply of manganese ore internationally continues to put pressure on realizations.

  • At the operating level, margins took a hit largely due to the fall in sales. Increase in operating costs (up 0.3% YoY) was not significant. Operating profit was down 16.6% YoY.

  • In line with the fall in operating profits, the net profit declined by 15.2% YoY. The net margin for the quarter stood at 48.7% as compared to 52.9% in 1QFY15.
What to expect?
At the current price of Rs 204, the stock is trading at about 6.6 times and 0.8 times our estimated FY17 EPS and book value per share respectively. Production volumes are yet to pick up. The company’s topline is under pressure due to falling realizations. Oversupply of manganese ore in international markets has put pressure on both volumes and selling prices. Despite this pressure on revenues at least in the near term, we believe MOIL's market leading status and huge reserve surplus will ensure that it will be the biggest beneficiary of the rise in steel demand once the economy revives.

We recommend investors to BUY the stock in a special report dated 26 June 2015. Considering the company’s strong balance sheet as well as the attractive valuations of the stock, we maintain our Buy view.

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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