MOIL Ltd. is a 55 year old, Government of India Enterprise PSU with almost 65% holding by Gov. of India.
Industry:
The company primarily produces Manganese Ore which is a raw material for making steel. Most of the demand is generated by the domestic steel industry. The Indian Steel industry has had great recent years as it grew from 89 million tonnes to 95.6 million tonnes in the year 2016, growing at 7.4% while the global steel production grew only at 0.8%. China, the largest producer of steel grew at 1.2% while Japan, the second largest had a decline in its growth by 0.3%.
Therefore, the strong domestic steel production will continue to fuel the demand for domestic manganese ore raw material.
Nearly 6 kilograms of manganese is required for manufacturing one tonne of steel. It is also used for the manufacture of bleaching powder, insecticides, paints, batteries and china-clay.
India has the second largest manganese ore reserves in the world after Zimbabwe. The total in situ reserves of manganese ore are 406 million tonnes out of which 104 million tonnes are proved, 135 million tonnes are probable and 167 million tonnes are in possible categories.
India is the world’s fifth largest producer of manganese ore after Brazil, Gabon, South Africa and Australia. Production of manganese ore in India remains more or less static, with slight variations from year to year.
Company performance:
MOIL is the largest producer of manganese ore and commands a 45% market share. The total mining lease the company has spreads over 1742 Ha covering the states of Maharashtra and Madhya Pradesh.
The financials of the company are very strong.They currently have capacity of 1.15 million MT. Plan to expand this to 2 million MT by 2021 and 2.5 million MT by 2025. They have vocreed 460 Cr. in capex to double their production at Bhalghat from 0.37 million MT to 0.74 million MT by 2024.
Expected revenues to grow at 25% CAGR over the next 4 years to reach 2 million MT of production.
The revenue is primarily driven by the global Manganese ore prices. MOIL produces Ferro grade as well as some of lower grade ore. Therefore, the sales have a high correlation with the manganese ore prices.
Last year, the sales went up from 634 Cr to 989Cr by 56%. Primarily due to a better product mix and a price increase of 37%; from 5911 PMT to 8078 PMT. This was inline with the global uptrend in prices. Early this March, they have again increased prices by 10%. The volume increase last year was of 16.75 % as production went up from 0.967 million MT to 1.129 million MT
Fig 1. Manganese Outlook for 2018
The company issued a 1:1 bonus. Also there was a 60% dividend payout of Rs. 6.
This year, they have issued a share repurchase at the price of 240, which is ~20% above the current market price of 203. With this share repurchase, the RoE will increase from 10.9 to 11.79. and book value per share will go down from 210 to 100. The shares buy back will reduce the number of shares in the open market and hence increase the share of the investor in the company profits. It will also create less supply of shares which has a positive effect on the share prices.
Investment thesis:
The FY 18 revenue is expected to reach around Rs. 1,200 Cr and expected EPS can be between 22 to 24. On a conservative valuation basis, at a PE of 13, the target price is expected to be Rs.300.
Based on current market price of Rs. 203, this translates to an expected returns of 47%. Traders can buy for 4-6 months with a stop loss of Rs. 180
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