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MOIL Ltd: Product mix improves - Views on News from Equitymaster
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MOIL Ltd: Product mix improves
Nov 25, 2014 | Updated on Nov 26, 2014

MOIL Limited has announced its results for the quarter ended Sep 2014. The company has reported a 7.1% YoY growth in net sales while profits increased at a brisk pace of 22.7% YoY for the quarter ended Sep 2014. Here is our analysis of the results.

Performance summary
  • The company's topline has increased by 7.1% YoY. The average realization increased to Rs 8,174 per tonne, up from Rs 7,692 per tonne in the last quarter.
  • Operating profits increased by 20.6% YoY. Operating margins for the quarter stood at 41.9% as compared to 37.2% in 2QFY14. This was predominantly because of an increase in high grade ore production by 19% during the quarter which fetches better realizations.
  • At the bottomline level, net profits increased by 22.7% YoY. Apart from strong operating performance an increase of 27.8% YoY in other income boosted profitability.
  • Management plans to incur a capex of Rs 1.53 bn this fiscal.
  • The production figure during the quarter stood at 2.41 lakh tonnes while sales volume stood at 2.38 lakh tonnes.

Financial performance snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Sales 2,268 2,429 7.1% 4,657 4,435 -4.8%
Expenditure 1,424 1,411 -0.9% 2,647 2,433 -8.1%
Operating profit (EBDITA) 844 1,018 20.6% 2,010 2,002 -0.4%
Operating profit margin (%) 37.2% 41.9%   43.2% 45.2%  
Other income 585 748 27.8% 1199 1458 21.6%
Depreciation 85 102 19.5% 167 190 13.4%
Interest 0 0 NA 0 0 NA
Profit before tax 1,344 1,664 23.8% 3,041 3,271 7.6%
Tax 439 553 26.1% 1015 1099 8.2%
Profit after tax/(loss) 906 1,111 22.7% 2,026 2,172 7.2%
Net profit margin (%) 39.9% 45.8%   43.5% 49.0%  
No. of shares (m)          168  
Diluted earnings per share (Rs)         12.9  
P/E ratio* (x)         10.1  
* On a trailing 12 months basis

What has driven performance in 2QFY15?
  • MOIL Limited has reported a 7.1% YoY increase in net sales for the quarter ended Sep 2014. Improvement in realizations on account of better product mix boosted sales growth. In 1HFY15, realizations stood at Rs 8,551 per ton.

  • At the operating level, during 2QFY15, the profits increased by 20.6% YoY as expenditure declined by 0.9% YoY. Management believes that gross margin in the range of 45% is sustainable in the near future.

  • Net profits increased by 22.7% YoY on the back of strong operating performance and 27.8% YoY growth in other income.
What to expect?
While the production was up, sales volumes were marginally lower on a YoY basis during the quarter. Going forward, we expect a modest rise in production and sales volumes, despite revival in the steel industry due to a threat from imports. Heavy imports from Australia and South Africa have created a pricing pressure in the market. It may be noted that about half of India's manganese ore requirements were met through imports last year due to better pricing.

At the current price of Rs 313, the stock is trading at a multiple of 10.1 times its trailing twelve month earnings. Though the company has aggressive expansion plans in place to reach about 2 m tons of production levels by FY20-21 (from 1.1 m in FY14) threat from imports and regulatory risks will continue to remain an overhang. As far as pricing is concerned management expects manganese prices to remain stable till the end of the year while some improvement is expected by the start of the next year.

Based on these factors, we recommend investors to buy the stock at lower levels. 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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