Recommendations » India

MOIL 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, MOIL’s net sales and EBITDA decreased by 5.4% and 31.9% yoy, respectively, mainly due to a steep decline in manganese ore prices. We recommend a Reduce rating on the stock.

Lower realization leads to a decline in the top line: During the quarter, MOIL’s net sales decreased by 5.4% yoy to Rs.240cr (slightly below our estimate of Rs.248cr) mainly on account of the decrease in average realization (down 20.1% yoy and 1.9% qoq to Rs.7,993/tonne), partially offset by increased sales volume growth (up 19.5% yoy and 5.4% qoq to 285,500 tonnes).

Margin shrinks due to lower realization: During the quarter, MOIL’s EBITDA decreased by 31.9% yoy to Rs.109cr. EBITDA margin dipped by 1,782bp yoy to 45.7% on account of slump in manganese ore prices. Other income, however, increased by 47.8% yoy to Rs.50cr. Consequently, net profit decreased by 18.9% yoy to Rs.102cr, slightly below our estimate of Rs.106cr.

Outlook and valuation: Manganese ore prices have gradually slumped by over 40.0% since January 2011 on the back of oversupply in global markets. For 4QFY2012, MOIL has further lowered its prices by 5-20% for various grades. Although the company’s sales volumes are expected to witness a CAGR of 8-10% during FY2011-15, we do not foresee any meaningful rise in manganese ore prices in the coming one year. Hence, valuing the stock at 4.5x FY2013E EV/EBITDA, we derive a target price of Rs.247 and recommend Reduce on the stock.