‘Buy’ on MOIL, TP at Rs 260; volume outlook is positive

By: | Updated: December 4, 2018 4:35 AM

MOIL Q2FY19 revenue was higher than estimates, driven by better-than-expected sales volume.

Ebitda during the quarter grew 25.6% y-o-y and 7% q-o-q to Rs 1.46 bn, with an Ebitda margin of 40.9% (down 270 bps q-o-q).

MOIL Q2FY19 revenue was higher than estimates, driven by better-than-expected sales volume. Blended ore realisations stood at Rs 10,560/tonne were 12.7% below our estimates, which partly offset the benefit of higher volumes.

The company had taken 5% price hike in September ’18 and 10% in October ’18, the benefit of the same will reflect in Q3FY19. Manganese ore shipments grew 17.7% y-o-y and 28.4% q-o-q to 312kt (production volume stood at 275kt). Blended realisation during the quarter declined by `1,698/tonne sequentially to Rs 10,560/tonne. PAT during the quarter stood at Rs 1.05 billion, marginally lower than our estimate of Rs 1.09 bn, due to higher tax rate of 40.2%.

Management had guided for a 10% increase in FY19 sales volumes with expansion of underground mining capacity and higher production of domestic steel. Manganese ore outlook remains positive with the firm domestic demand led by higher steel production. Cash and cash equivalents at the end of Q2FY19 stood at Rs 23.3 billion (50% of market cap). 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 9.6x/8.5x FY19E/FY20E earnings and on EV/Ebitda, it trades at 3.7x/2.8x FY19E/FY20E Ebitda. We reiterate our ‘Buy’ rating on the stock with an unchanged target price of `260. Sales volume during the quarter stood at 312kt, up 17.7%/28.4% y-o-y/q-o-q, higher than estimates and also higher than the production volume of 275kt, resulting in liquidation of inventory, which was built up in previous quarter.

Decline in blended ore realisation, partly offset the benefit of the higher volume. Realisation during the quarter declined by 13.9% q-o-q to Rs 10,560/ tonne (up 1.5% y-o-y), as the company had cut prices in June 2018. MoIL had taken price hike in September and October 2018, the benefit of the same will reflect in Q3FY19 operating performance. Ebitda during the quarter grew 25.6% y-o-y and 7% q-o-q to Rs 1.46 bn, with an Ebitda margin of 40.9% (down 270 bps q-o-q).

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