MOIL - An inexpensive stock of a cash rich company

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MOIL holds 73.5 million tonnes (mt) — about 44 per cent of the country’s reserves — of medium and high-grade ore, spread across ten mines. In 2013-14 MOIL produced 1.1 mt of ore, accounting for over 40 per cent of the local production.

Right now, the market cap is Rs.4100 crores at the CMP Of Rs.245. They have cash of Rs.3000 crores on their balance sheet. So the whole company is available for Rs.1100 crores. In FY15, their EBIDTA was Rs.650 crores. The net profit was Rs.428 crores. Operating profit margins are very high, between 75-80%.

Company pays Rs.8.50 dividend.

Seems very cheap. Probably because Manganese ore prices are low now.

This is not a recommendation to buy. I own this stock.

2

I bought @ at 356.25 /- in IPO in 2010 Dec, still holding :slight_smile: (CMP is 246) It didnt make any money for shareholders till now. Looks like there are huge headwinds for the sector itself. Even though its a buffet like stock available with good MOS sector headwind keeps people away from it.

3

Consider that in FY15 their EBIDTA was Rs.334 crores. Their ‘Other Income’ from interest on cash/bank of Rs.2793 crores (probably) was Rs.292 crores and their total profit before tax was Rs.651 crores.

http://www.bseindia.com/xml-data/corpfiling/AttachHis/E40A00E4_31A2_4DA3_BA1C_694A525AA1AF_150929.pdf

Now, look at their market cap, which is Rs.4200 crores. Reduce their cash and near cash holdings from it of Rs.3000 crores.

So, here’s a company that generates Rs.651 crores pre-tax profit in a year available for Rs.1200 crores. The ‘headwind’ you are referring to is the sliding price of manganese ore. MOIL operates 10 manganese ore mines all over the country. If this is their financial performance in these challenging circumstances, I only wonder how it will be when the scenario improves for them! How long will it take? If steel prices in our country firm up, manganese ore prices may also improve.

A week back, our government imposed anti-dumping duty on some steel from China.

Read this report:
http://www.careratings.com/upload/Research/IndustryResearch/Manganese%20Ore.pdf
Quoting it:
Approximately 90 percent of the overall manganese consumption is primarily attributed to the
steel plants globally; hence production of steel is the basic underlying for the demand of
the metal and its ore.

The growth in the production of manganese ore in India is highly correlated to the growth in the production of steel. The production of manganese ore has grown steadily from FY01 with the exception of FY06 and FY10. The consumption of manganese ore has increased at a faster pace when compared with its production in the backdrop of India’s ever increasing steel production.
Quote ends.

Look at the shareholding pattern of MOIL. Domestic institutions and FIIs are gradually raising their stake, in almost every quarter.

EPFO is taking guidance from LIC to invest 5% of their corpus. PSUs like MOIL will attract investor interest, in my opinion.

http://www.bseindia.com/stock-share-price/stockreach_shp.aspx?scripcode=533286

http://economictimes.indiatimes.com/markets/stocks/news/epfo-taps-lic-to-understand-stock-market-investments/articleshow/47572615.cms

Rs.356 was a high price five years back. Rs.245 looks cheap now, really cheap! The company gives Rs.8.50 as dividend. So, That’s a 3.5% further tax free yield.

Disclosure: This is not a recommendation to buy. I own this stock.

4

Few concerns i have are

  1. The sales are going down for last five years and so are the profits.
    2 The company’s future depends upon govt approvals.
    3 if global market has cheaper ore prices why is MoIL looking for global mines for extracts. Wont it be expensive to mine outside than in india?

If someone has good answers please enlighten us. Thanks.

5

The sales and profits have NOT been going down for the last five years.

See:

http://www.bseindia.com/stock-share-price/stockreach_financials.aspx?scripcode=533286&expandable=0

FY11 was a peak for the company. Then sales slid in FY12. Improved in FY13, improved further in FY14 before falling in FY15. Their sales are tied to local production of steel, infrastructure growth and the price of manganese ore. Prices of manganese had hit a high in 2011. They have been declining lately.

MOIL operates ten mines all over the country. It not just depends on govt approvals, it is a PSU, 80% owned by the President of India.

From

MOIL Ltd’s annual production is about 1.2 million tonnes (MT) now and keeping in view the demand growth in the coming years, the company aims to increase the capacity to the tune of 2.2 MT by 2020-21.

The acquisition of mines abroad is a risk factor. It could go either way.

6

Thanks vic

I noticed their 3x increase in inventories and receiveables. These are not huge probs as of now but if trend continues then it is for sure.

Until cheaper options are not replaced in international markets, I think comp will have issues in gaining momentum. But your analysis of just cash value is intact.

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CMP: 181.5
MKT CAP: 4643 cr
NP: 421.99 cr
CASH+CASH EQUIVALENTS: 2139 cr (46% OF MKT CAP)
DEBT=0
Yield if you buy the business outright today= 16.8% (NP/(MKT CAP+DEBT-CASH)
This NP may dip a bit going forward as Mn prices have dipped, however it will still be a pretty good yield.
This is a co with 50% mkt share, and potential to grab much more as India still imports a large chunk of its Mn requirements as local production is insufficient to meet demand, the co is one of the lowest cost producers in the world.
MOIL has implemented an expansion plan that should see production increasing from 1.1 MT currently to 2 MT by 2021-82% increase- so long term revenue and profit growth is fairly predictable as Mn will not go out of fashion.
There is speculation that Mn demand will only increase as it will be required in EV car batteries, see previous post. Whether that happens or not, Mn is definitely required in the steel industry which is ramping up capacities and likely to increase production till 2021.
The co is also setting up ferro alloy plants to generate value added products, which should be onstream by 2022.
Meanwhile div yield is 6.3% which is very likely sustainable as co is quite profitable with zero debt and the govt will demand it.
This seems to me a good candidate for a 3-4 yr investment.

Risks that I can see:

  1. Mn prices may crash due to global developments, however MOIL is one of the lowest cost producers in the world, and reported a 28% NP MRG in FY18, so can reduce prices to match and still be quite profitable, while it ramps up production capacities and volumes.

Disclosure: 23% of portfolio currently, so Im biased. Please do your own research and analysis before investing.

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While calculating yield in the above way, we will have to remove impact of other income (i.e. interest received from cash) from Net Profit … as we are subtracting cash in the denominator.

Sincerely,
django

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Hello django.
In that case the yield comes to 12.2% , which still seems very good.
EBIT from core ops= 470.2
Interest=0
Tax @ 35%=164.57
PAT= 305.63 (core ops only not incl interest income)
Yield- 305.63/(4643-2139)=12.2%

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http://equitybulls.com/admin/news2006/news_det.asp?id=235131

Result Update: MOIL Ltd - BUY - TP Rs.260 - Kotak

Posted On: 2018-08-19 15:50:45
MOIL Q1FY19 numbers were above our estimates, driven by better than expected realisation. However, volume during the quarter declined and was lower than production, resulting in a build-up in inventory. MoIL has revised its prices upwards in the month of July, benefit of the same will flow in 2QFY19 onwards.

Key Highlights

  • Manganese ore shipments declined 20.8% YoY and 24.8% QoQ to 243kt (production volume stood at 324kt). This, offset the benefit of higher realisation. Blended realisation during the quarter stood at Rs12,258/tonne. Management has guided for a 10% increase in ore volume for FY19E.

  • The cost during the quarter declined sequentially due to decline employee costs, as last quarter numbers includes impact of actuarial adjustment.

Valuation & outlook

  • Manganese ore outlook remains positive with the strength in international steel prices and firm domestic demand led by higher steel production. Given its strong business model, robust balance sheet with strong liquidity positions and its dominant position in the domestic, supports our positive stance on the stock. At CMP, the stock trades at 10.1x/9.0x FY19E/FY20E earnings and on EV/EBITDA, it trades at 4.1x/3.1x FY19E/FY20E EBITDA. We reiterate our BUY rating on the stock with an unchanged target price of Rs260.

Shares of MOIL LTD. was last trading in BSE at Rs.173.15 as compared to the previous close of Rs. 171.25. The total number of shares traded during the day was 17844 in over 373 trades.

The stock hit an intraday high of Rs. 175.2 and intraday low of 171. The net turnover during the day was Rs. 3103806.
Source: Equity Bulls

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Don’t fit in either of the baskets. Not a screaming undervalued stock neither a value buy. Let’s talk about both of them:

  1. Undervalued stock: Company has a cash balance of Rs. 2140 Cr. and market cap. is 4182 Cr. which means the business is valued at Rs. 2042 Cr. by the market. From the graph, it is clear that the manganese Ore prices are cyclical in nature.


In 2016 the manganese ore prices dropped significantly. Now, Let’s look at the valuation and financials of the company in 2016:

  • Analogy I: The Cash balance FY16 is Rs.2850Cr. Which translates into Per share cash value of Rs.110.6 (Rs.2850 Cr./25.76Cr. (total no. of shares outstanding)). The lowest price at that time is around Rs.93

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    Now, Who wants to buy today when we know that Mr. Market will give it at a discount during depressed time, and offer us a 100 rupee note for 83 bucks and on top of that a business who is making money and asset which accounts for almost 50% of India’s manganese ore reserve.

  • Analogy II: As said it is a cyclical business. From the first graph, it is evident that the prices are up, so do the margins(41% = un-sustainable).
    So, why do we need to buy when things are rosy and we know that this rosy picture will not sustain forever.

  1. Value buy (forever type businesses): A simple logic cyclicality of the business.
    Because of the cyclicality of the business, one can’t project the future earnings. One can argue that they can, but what they are doing is not projecting but forecasting. “Projecting is finding the reliability factors responsible for the cash flows and then estimating that future cash flow of the company. On discounting it you get the present value of the business”. First, we need is to find the factors that confirm the reliability of the cash that the company will make. The reliability factor is missing in this case.

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If you look at the cash flow numbers of FY16: (Profits from operations - Taxes paid) is a negative number. So in worst times, the company may end up losing some money.
I provided enough points which tell you that it doesn’t a value buy at this price point. According to Graham first thing to look while investing is the safety of principal or you may know it as the margin of safety. Everything comes after that.

Disclaimer: Not invested

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There are multiple threads on MOIL. This being the newer, it is closed. All are requested to move their content to the older thread :Moil

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