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MOIL Ltd: Sales down on lower volumes - Views on News from Equitymaster

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MOIL Ltd: Sales down on lower volumes
Nov 20, 2012

MOIL Limited has announced its results for the quarter ended September 2012. The company has reported a 7.6% YoY decline in net sales and 7.6% YoY growth in net profits for the quarter ended September 2012. Here is our analysis of the results.

Performance summary
  • The company's topline has declined by 7.6% YoY.
  • Operating profits declined by 2.7% YoY while operating margins improved by 2% YoY.
  • At the bottomline level, net profits increased by 7.6% YoY while net profit margins increased by 6% YoY.
  • For the half year ended September 2012, net sales increased by 3% YoY while net profits declined by 0.9% YoY.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 2,483 2,295 -7.6% 4,584 4,720 3.0%
Expenditure 1,372 1,214 -11.6% 2,206 2,617 18.6%
Operating profit (EBDITA) 1,111 1,081 -2.7% 2,378 2,104 -11.5%
Operating profit margin (%) 45% 47%   52% 45%  
Other income 473 588 24.3% 907 1,111 22.5%
Interest (net) - -   - -  
Depreciation 72 84 16.6% 141 157 11.4%
Profit before tax 1,512 1,585 4.8% 3,143 3,057 -2.7%
Exceptional Item - -   - -  
Tax 502 499 -0.7% 1,044 976 -6.5%
Profit after tax/(loss) 1,010 1,087 7.6% 2,099 2,081 -0.9%
Net profit margin (%) 41% 47%   46% 44%  
No. of shares (m)         168  
Diluted earnings per share (Rs)         25  
P/E ratio (x)*         9.7  
* On a trailing 12 months basis

What has driven performance in 2QFY13?
  • MOIL Limited has reported a 7.6% YoY decline in net sales for 2QFY13 mainly on account of lower volumes. Volumes declined by 11.8% YoY to 238,992 tonnes, while realizations increased by 8.6% YoY to Rs 8,852/tonne. Sales volumes were lower as company only sold 36 kt of fines vs 69.9 kt in 1QFY13. Realizations improved by 24.7% QoQ as a result of the price increases taken in 2QFY13 and lower amount of fines sold during the quarter. Production of Manganese ore increased by 3.7% YoY to 487 kt in 1HFY13 but was largely on back of increase in low grade fines which increased by 17.5% to 106 kt. Ferrograde and low grade silica ore production declined by 1.23% and 15.66% to 224 kt and 151.5 kt respectively.

    Break-up of operating costs
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw Materials 48 51 7.1% 90 106 18.7%
    % of sales 2% 2%   2% 2%  
    (Increase)/Decrease in inventory of finished goods 291 25 -91.4% 104 307 194.5%
    % of sales 12% 1%   2% 7%  
    Employee costs 613 652 6.4% 1,166 1,235 6.0%
    % of sales 25% 28%   25% 26%  
    Other Expenditure 421 486 15.5% 847 968 14.3%
    % of sales -17% 21%   18% 21%  
    Total operating expenditure 1,372 1,214 -11.6% 2,206 2,617 18.6%
    % of sales 55% 53%   48% 55%  

  • During 2QFY13 the company's raw material consumed declined by 77.6% YoY. This coupled with higher realizations led to EBITDA declining by just 2.7% and EBITDA margin improving by 2.39% YoY to 47.1%. Employee cost saw a surprise jump of 6.4% YoY and 5.7% QoQ.

  • The company's net profit increased by 7.6% YoY. This was due to higher other income and lower expenses. Other income for the quarter ended September 2012 grew by 24.3% 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 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 had declined steadily since January 2011 on account of oversupply in global markets. However, since past six months, manganese prices have stabilized in the global markets. Further, Rupee depreciation against the US Dollar has resulted in higher realizations for MOIL in the past two quarters. MOIL has maintained the prices for 3QFY13 given the subdued demand. It has maintained its volume targets for the year also.

At the current price of Rs 242, the stock trades at around 1.6 times our estimated FY15 book value. We maintain our Buy view on the stock.

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