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MOIL Ltd: Weak performance continues - Views on News from Equitymaster
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MOIL Ltd: Weak performance continues
Nov 13, 2013

MOIL Limited has announced its results for the quarter ended September 2013. The company has reported a 1.2% YoY decrease in net sales and 16.6% YoY in net profits for the quarter ended September 2013. Here is our analysis of the results.

Performance summary
  • The company's topline has decreased by 1.2% YoY.
  • Operating profits declined by 21.9% YoY while operating margins declined by 10% YoY.
  • At the bottomline level, net profits decreased by 16.6% YoY while net profit margins declined by 7.4% YoY.
  • For the half year ended September 2013, net sales and net profits declined by 1.4% YoY and 2.7% YoY.

Financial performance snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 2,295 2,268 -1.2% 4,720 4,656 -1.4%
Expenditure 1,214 1,424 17.3% 2,616 2,647 1.2%
Operating profit (EBDITA) 1,081 844 -21.9% 2,104 2,009 -4.5%
Operating profit margin (%) 47.1% 37.2%   44.6% 43.2%  
Other income 588 585 -0.4% 1,111 1,199 8.0%
Interest (net) - -   - -  
Depreciation 84 85 1.5% 157 167 6.3%
Profit before tax 1,585 1,344 -15.2% 3,057 3,041 -0.5%
Exceptional Item - -   -   -  
Tax 499 439 -12.1% 976 1,015 4.0%
Profit after tax/(loss) 1,086 906 -16.6% 2,081 2,025 -2.7%
Net profit margin (%) 47.3% 39.9%   44.1% 43.5%  
No. of shares (m)         168  
Diluted earnings per share (Rs)         26.4  
P/E ratio (x)*         8.7  
* On a trailing 12 months basis

What has driven performance in 2QFY14?
  • MOIL Limited has reported a 1.2% YoY decrease in net sales for the quarter ended September 2013 as lower realizations was offset by higher volumes. Volumes increased by 6.9% YoY to 255,389 tonne, however, realizations decreased by 12.0% YoY to Rs 7,788/tonne. The company highlighted that mining was impacted in the quarter due to heavy rainfall (production down 4% YoY).

    Break-up of operating costs
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw Materials 51 69 35.3% 106 128 20.3%
       % of sales 2% 3%   2% 3%  
    (Increase)/Decrease in inventory of finished goods 25 180 619.9% 307 191 -37.7%
       % of sales 1% 8%   7% 4%  
    Employee costs 652 678 4.0% 1,235 1,350 9.3%
       % of sales 28% 30%   26% 29%  
    Other Expenditure 486 497 2.3% 968 977 1.0%
       % of sales -21% 22%   21% 21%  
    Total operating expenditure 1,214 1,424 17.3% 2,616 2,647 1.2%
       % of sales 53% 63%   55% 57%  

  • At the operating level, during 2QFY14, the company's total expenditure increased by 17.3% YoY due to higher raw material costs. This, alongside lower realizations led to the EBITDA falling by 21.9% YoY to Rs 844 bn; the EBITDA margin contracted by 991 basis point YoY to 37.2%.

  • Other income was flat YoY; therefore the net profit decreased by 16.6% YoY.
What to expect?
After a steep decline in manganese ore prices over the past two years, prices have stabilized lately. We believe that improvement in Manganese ore pricing trend (MOIL announced price hike for Dec quarter) and increasing steel production from here on (higher exports and seasonal recovery in steel demand) should help support stock performance. MOIL maintained payout at 20% in FY13, however given the slow progress on capex and cash on the balance sheet, a higher dividend payout (similar to other mining PSUs) would be a positive, in our view.

Going forward, we expect MOIL's realizations to stabilize over the coming one year, especially considering the Rupee depreciation against the US Dollar. Although we estimate MOIL's sales volumes growth to remain muted during FY13-15, we believe the valuations are attractive.

At the current price of Rs 231, the stock is trading at a multiple of 8.7 times its trailing twelve month earnings. We maintain our Buy view on the stock. 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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