Equinomics Research, have strong conviction on MOIL from both short-term
and long term perspectives and hence, we initiate our recommendation on the
stock at a current price of Rs. 324 Our view is based on following rationale:
Investment Rationale..
MOIL is India’s largest manganese ore producer, accounting for about 51%
of country’s production and nearly 44%
of proven reserves with about 73.5 million ton of reserves and resources of
manganese ore – hence, it is well positioned to capitalize on long term growth
prospects in the steel industry.
The domestic steel industry has increased the capacity by about 50 % in
the last 4 to 5 years which is positive for the domestic manganese ore
producers;
* Last year MOIL was granted
prospecting license for manganese ore over an area of 597 hectares in the state
of Maharashtra. It has prepared an ambitious plan of enhancing production level
from 1.1 million tons to 2.2 million tons by FY2021 (ie in next 7 years) –
allotment of license for additional mining area offers opportunity to expand
profits substantially in the long term;
* MOIL is a debt-free and cash rich company – it holds a cash pile of
Rs.2,793 crore (as of March 31, 2014, Rs.166 per share) which is about 51% of
its current market cap. Its operating margin in FY2014 stood at 50%. Over 45% crash in exchange rate of rupee is
positive for the producers of import substitutes like manganese ore.
* MOIL came out with an IPO at a price of Rs.375 nearly 4-years ago and
after its listing on the exchanges, its price moved up as high as Rs.591 in
December 2010. Since its market price quotes 14% below its IPO price even after
nearly 4-years, company is sitting on a huge cash pile and the government is
holding 80% stake in the company, we believe that there are possibilities of
company coming out with buy-back offers (at significant premium to the market
price) or special dividends in near future.
Outlook and Valuation..!
We believe that MOIL has a strong growth potential on back of anticipated
economic revival. The key catalysts for the company going forward are:
(a) rupee depreciation (higher landed costs of imported manganese ore),
(b) strong balance sheet and
(c) expansion of existing mines.
The street expects about Rs.29 EPS for FY2015 which is about 11 PE.
In Equinomics Research view, it is at attractive valuation considering
the cash position, above-mentioned catalysts and recent shift in valuation
multiples for the PSU stocks.
Equinomics Research recommend a BUY on the stock with a target price of
Rs.400
For more details
 |
| Mr. G . Chokkalingam, Equinomics Research |
Mr. G . Chokkalingam
Founder
& Managing Director
Equinomics Research & Advisory Pvt Ltd
18- 3/A, Ekta CHS, Shiv Dham Complex
(Opp to Oberoi Mall)
Filmcity Road,
Malad (East)
Mumbai - 400 097
No comments:
Post a Comment