moil initiating coverage 20151130
DESCRIPTION
HDFC initiating coverage reportTRANSCRIPT
-
INITIATING COVERAGE 30 NOV 2015
MOIL BUY
All that cashManganese (Mn) is a critical steel input, a key part of the production process and a source of important mechanical properties. It is mostly used in the form of alloys Silicomanganese (~65%) and Ferromanganese (~35%).
With China consuming ~60% of the global output (in contained metal terms), the slowdown in its economy has hit Mn ore prices, like other ferrous inputs. Despite >50% of the capacity being below cash cost at current prices (US$ 2.09/dmtu), it is difficult to call a bottom for the Mn ore prices. India imports >50% of its domestic requirements, as domestic ores are of a lower grade.
Despite the slump, MOIL is attractively positioned because (1) It is the only domestic producer of high grade ores, (2) 1st quartile cash costs, (3) Long reserve life (30+ years), and (4) Cash on balance sheet (~Rs 170/sh). Initiate with a BUY with a TP of Rs 242 (5.0x FY18x EV/EBITDA)
Key takeaways
Near-term outlook weak: With weak prices, stagnant production/sales and large fixed costs (employees formed 60% of the op cost in FY15), the profitability is expected to decline sharply (EBITDA margins at 25% in FY16E vs. 46% in FY15). We expect the earnings to decline 42/12% in FY16/17 mainly on account of weak pricing.
Compared to mining PSUs with high cash content, we believe the possibilities of MOIL taking up large, long gestation projects are low. This is due to:
o Low capex intensity of core operations, mainly mining
o Domestic overcapacity in ferro-alloys. As a result, dividend yields (currently at ~4%),
may rise sharply. At current valuations (2.5-3.0x 1-year forward), the risk to reward is favourable.
Financial Summary Y/E Dec (Rs. in mn) FY14 FY15 FY16E FY17E FY18E Net Sales 10,213 8,233 6,572 6,974 8,168 EBITDA 5,546 4,159 1,684 1,628 2,424 PAT 5,096 4,280 2,475 2,180 2,628 Diluted EPS (Rs) 30.3 25.5 14.7 13.0 15.6 P/E (x) 6.6 7.8 13.5 15.3 12.7 EV / EBITDA (x) 0.8 1.0 2.1 2.6 1.7 RoE (%) 17.3 13.2 7.2 6.3 7.4 Source: Company, HDFC sec Inst Research
INDUSTRY MINING
CMP (as on 27 Nov 2015) Rs 199
Target Price Rs 242
Nifty 7,943
Sensex 26,128
KEY STOCK DATA
Bloomberg MOIL IN
No. of Shares (mn) 168
MCap (Rs bn) / ($ mn) 33/500
6m avg traded value (Rs mn) 15
STOCK PERFORMANCE (%)
52 Week high / low Rs 325/183
3M 6M 12M
Absolute (%) (4.6) (20.6) (37.5)
Relative (%) (4.2) (15.4) (29.4)
SHAREHOLDING PATTERN (%)
Promoters 80.00
FIs & Local MFs 3.99
FIIs 6.48
Public & Others 9.53
Source : BSE
Ankur Kulshrestha [email protected] +91-22-6171-7346
Anuj Shah [email protected] +91-22-6171-7321 HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters
-
MOIL : INITIATING COVERAGE
Manganese: A critical element in the steel value chain Mn is a critical steel input
Manganese is a critical raw material input and additive for the steel industry owing to its de-oxidating, sulphur fixing, and alloying properties.
Its addition to steel enhances mechanical properties as strength, hardness, toughness, stiffness and wears resistance. Most Mn ore is processed into alloys before being used to make steel.
Silicomanganese (SiMn), which accounts for about 65-70% of all Mn alloys produced, is mainly used in long products.
Ferromanganese (FeMn), which accounts for ~30-35% of alloys, is mainly used in flat products.
Some Mn ore is used directly to make iron through BF route where it acts as a de-sulphuriser.
In 2013, the global consumption of Mn alloys was ~19mT, with SiMn accounting for ~70% of the volumes.
Mn is a consumable for steel industry as recovery from scrap is not possible. It is not recyclable.
Other industrial applications include alloying in non-ferrous metals, zinc smelting, dry cell batteries and chemicals.
Manganese Value Chain
Source: International Mn Institute (IMnI), Metal Bulletin, HDFC Sec Inst Research
Global Mn Alloy Production Break-up
Source: International Mn Institute (IMnI), Metal Bulletin, HDFC Sec Inst Research HC: High Carbon; Ref: Refined Fe Mn
4.4 4.4 4.2 4.2
1.5 1.6 1.6 1.7
8.711.9 11.7 13.2
14.6
17.9 17.519.1
0
5
10
15
20
25
2010 2011 2012 2013
HC FeMn Ref FeMn SiMn TotalmT
Mn is a critical steel input, a key element in the production process and imparts important mechanical properties Most Mn is used in the form of Silicomanganese (~65%) and Ferromanganese (~35%) alloys
Crude Steel~90%
Other~10%
Slag~15%
Ferro Alloys~85%
Manganese Ore
Feedstock for Ferroalloys93% - 94%
Speciality Processing6% - 7%
SiMn : ~65%FeMn : 35%
Page | 2
-
MOIL : INITIATING COVERAGE
1 tonne of steel requires ~8.8kg of Mn input
Given the break-up of global steel production, 1 tonne of steel would need 8.8kg of Mn (contained metal)
Mn is consumed in high proportions in making of stainless steels and high-strength low-alloy steel (HSLA)
In Indias context, as stated by BIS standards: 10kg of Mn ore is required for 1 tonne of hot
metal (BF grade ore 25-30% Mn)
7kg of SiMn is consumed for a tonne of crude steel on an average, which, in turn, needs 1.8 tonne of Mn ore (30-35% Mn)
5kg of FeMn is consumed for a tonne of crude steel on an average, which, in turn, needs 2.4 tonnes of Mn ore (>40% Mn)
For a steel production target of 180 mT in 2020, Indian Bureau of Mines (IBM) estimated domestic Mn ore requirement at 9 mT (~5%)
Steel Types Relevant To Manganese
% of steel produced
Mn content
High Mn content steels High Mn non-magnetic steel 1.0% 11% Hadfield steel 1.0% 13% Stainless (200-series) 0.4% 12% Low Mn content steels Carbon steel 87.0% 0.5% HSLA steel 7.0% 1.5% Engineering/construction steel 3.0% 1.0% Stainless (excl. 200-series) 2.0% 1.0% Mn consumption/tonne of steel 0.9%
Source: International Mn Institute (IMnI), IBM, HDFC sec Inst Research Note: Totals may not add up due to rounding-off
Domestic Mn Ore Consumption Estimates (IBM)
Mn ore content
(kg/t) Mn ore required for Hot Metal (1) 10 Silico Manganese (SiMn) (2) 7 - Mn Ore/t of Si Mn (3) 1.8 Ferro Manganese (FeMn) (4) 5 - Mn Ore/t of Fe Mn (5) 2.4 Total Mn ore Content (kg/T) ( 1+2*3+4*5) 34.6
Source: International Mn Institute (IMnI), IBM, HDFC sec Inst Research
On an average, 8.8kgs of Mn input is required for 1 tonne of steel production Given the ore quality, every tonne of steel produced in India needs ~35kg of Mn ore input
Page | 3
-
MOIL : INITIATING COVERAGE
India imports >50% of its Mn ore requirement
Low on high grade
Indias domestic ores are inferior in quality, with hardly 15-20% of domestic reserves compliant with FeMn requirements.
As a result, imports are dominated by higher grade ores (Mn >35%), which are typically blended with lower grade domestic ores before alloy production.
Imports have grown to ~60% of apparent consumption of Mn ore in FY15, from practically nil in FY05.
Break-up Of India Mn Ore By Grade
Source: IBM, Ministry of Trade, HDFC sec Inst Research
Imports Dominated By Higher Grade Ores
Source: IBM, Ministry of Trade, HDFC sec Inst Research
Imports Now At 60% Of Domestic Mn Consumption
Source: IBM, Ministry of Trade, HDFC sec Inst Research
9.16.1
35.126
9.9
13.8 7.8
13.9
33.315.6
15.2
14.2
FeMn Grade
Medium
BF Grade
Fe Mn/BF MixedMedium and BF FixedOthers
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
46%+ 44-46% 40-44% 35-40% 35%) India needs to import >50% of its Mn ore requirements, mostly of higher grades
Reserves: 142 mT Resources: 288 mT
Page | 4
-
MOIL : INITIATING COVERAGE
~60% Of Global Mn Consumption of Contained Metal by China
~40% of Mn Ores Produced Globally By China
Chinese Ore Is Poor In Mn Content It Also Dominates Seaborne Trade
Source: IMnI, HDFC sec Inst Research
0
4,000
8,000
12,000
16,000
20,000
2008 2009 2010 2011 2012
China India Ukraine Russia South Korea Others
000 t
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2008 2009 2010 2011 2012 2013
China South Africa Australia GabonBrazil India Others
000 t
-6,000
-4,000
-2,000
0
2,000
4,000
2008 2009 2010 2011 2012
China India Japan RussiaUkraine South Africa Australia GabonBrazil Ghana
'000 T
China accounts for ~60% of global Mn ore consumption and ~40% of ore production However, due to inferior quality of its ores, it imports heavily and dominates the global seaborne trade in Mn ore
18%
41%
44%
45%
43%
36%
38%
28%
24%
10%
20%
30%
40%
50%
Chin
a
Sout
h A
fric
a
Aus
tral
ia
Gab
on
Bra
zil
Indi
a
Ukr
aine
Gha
na
Oth
ers
Page | 5
-
MOIL : INITIATING COVERAGE
A commodity in the doldrums Mn ore, iron ore and steel prices (Rebased)
Source: Metal Bulletin, Bloomberg, HDFC sec Inst Research Note: All data as of November 27, 2015, close. Iron ore annual contract prices prior till JFY10, Chinese spot price thereafter
0
100
200
300
400
500
600
700
800
900
1000
Jan-
03A
pr-0
3Ju
l-03
Oct
-03
Jan-
04A
pr-0
4Ju
l-04
Oct
-04
Jan-
05A
pr-0
5Ju
l-05
Oct
-05
Jan-
06A
pr-0
6Ju
l-06
Oct
-06
Jan-
07A
pr-0
7Ju
l-07
Oct
-07
Jan-
08A
pr-0
8Ju
l-08
Oct
-08
Jan-
09A
pr-0
9Ju
l-09
Oct
-09
Jan-
10A
pr-1
0Ju
l-10
Oct
-10
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l -12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
Mn Ore (44% Mn), CIF Tianjin Port Iron ore, Brazil to Europe, 64.5% Fe, FOB Iron ore fines, 62% Fe, CIF China China HRC Spot prices
MOIL IPO
US$45/t
US$2.09/dmtuUS$286/t
Highly levered to Chinas steel consumption, Mn Ore pricing has crashed in lockstep with steel/iron ore
%
Page | 6
-
MOIL : INITIATING COVERAGE
MOIL: World-class assets with long reserve life Operating world-class assets
MOIL operates 10 mines in Maharashtra and MP. It produces high-quality Mn ores (35%+ Mn content), which are the key drivers for business.
It is the only producer of high-grade Mn ore domestically.
The operations are 1st Quartile on Mn ore cash cost curve. However, compared with other large producers, which are export focused, MOIL sells domestically.
Reserve life of ~30 years on last disclosed reserves numbers. MOIL has continuously added resources in the past to maintain reserve life.
Average grade of reserves is ~33%, with grade at two largest mines, Balaghat and Dongri Buzurg, in excess of 40%.
Global indicative mn ore cash cost curve (FOB 2014)
Source: Companies, IBM, HDFC sec Inst Research Note: Production/cost from swing producers is representative and not accurate due to restricted data availability
Reserves And Resources
State Avg Mn
Grade (%) Reserves Resources
Proved Probable Total Measured Indicated M+I Inferred Total Balaghat 40% 6.92 2.07 8.99 12.71 7.14 19.84 1.49 21.33 Dongri Buzurg 42% 2.98 - 2.98 3.31 7.48 10.79 0.23 11.01 Other MP Mines 37% 1.51 2.26 3.76 5.58 1.62 7.21 3.71 10.92 Other Maha mines 35% 2.83 1.79 4.63 5.44 8.29 13.73 2.81 16.54
Total (JORC Compliant) 33% 15.62 6.12 21.75 36.78 24.53 61.30 8.24 69.54 FY14 (UNFC Compliant)
32.34
73.50
Latest (UNFC Compliant)
77.38
Source: Company, IBM, HDFC Sec Inst Research Note: JORC compliant reserves as at October 30, 2010
-
1.00
2.00
3.00
4.00
5.00
6.00
0.0 7.0 14.0 21.0 28.0 35.0 42.0
Swing producers
Current price (CIF China)
MOIL
Production (mT)
Cash
cos
t (U
S$/d
mtu
)
MOIL is the sole producer of high-grade Mn ore in the domestic market Low, 1st quartile cash costs, long reserve life and high grade of reserves make MOIL a leading Mn Ore producer globally Balaghat (MP) and Dongri Buzurg (Maharashtra) are two key mines that are a source of high-grade Mn
Page | 7
-
MOIL : INITIATING COVERAGE
MOIL accounts for a majority of Indias production/high-grade reserves MOILs Share Of Consumption In India MOILs Share Of Production In India
Source: Company, IBM, HDFC sec Inst Research Source: Company, IBM, HDFC sec Inst Research Domestic Ore Producers
Producers District State Grade of ore
MOIL Limited Bhandara
Maharashtra HG+MG Nagpur
Tata Steel Limited Keonjhar
Odisha MG Sundergarh
The Odisha Manganese and Minerals (P) Limited
Sundergarh Odisha MG
M.L. Rungta Keonjhar Odisha MG RBSSD & FN DAS Vizianagaram Andhra Pradesh MG+LG The Sandur Manganese & Iron Ores Limited
Bellary Karnataka MG+LG
Gujarat Mineral Development Corporation
Panchmahal Gujarat MG
Others Goa, Jharkhand, Rajasthan MG+LG Source: IBM, HDFC sec Inst Research
0%
5%
10%
15%
20%
25%
30%
0
1,000
2,000
3,000
4,000
5,000
6,000
FY11 FY12 FY13 FY14 FY15
India MOIL % of domestic cons (RHS)
'000t
0%
10%
20%
30%
40%
50%
60%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
FY11 FY12 FY13 FY14 FY15
India MOIL % of Dom. Prodn (RHS)
'000t
MOIL accounts for a lions share in domestic Mn ore production and consumption, apart from being the only producer of high-grade Mn ores
Page | 8
-
MOIL : INITIATING COVERAGE
MOIL: In the numbers Volumes Stagnant, We Expect Capex To Increase Realisations Fall In Line With Declining Global Prices
Payroll, Royalties (DMF) To Drive Cash Costs Higher Mn Ore Accounts For >90% Of Sales
Source: Company, HDFC sec Inst Research Note: US$/dmtu calculated at average content of 44% Mn
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
E
FY17
E
FY18
E
Production Sales Capex (Rs bn, RHS)
mT Rs bn
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
E
FY17
E
FY18
E
US$/dmtu
1.7 1.40 1.67 1.97 1.81 1.63 1.73 1.74 1.78 1.90
4.7
2.41
3.80
1.88 1.51 1.65 1.53
0.55 0.49 0.75
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
E
FY17
E
FY18
E
Implied cash cost/t Blended EBITDA/T
US$/dmtu
0%
20%
40%
60%
80%
100%
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Manganese ore E.M.D.
Ferro manganese Ferro manganese slag
Power to MPEDCL(KwH)
We do not expect steep volume upsides, capex largely treadmill in nature Mn prices are expected to remain under pressure given global glut Profitability will be further impacted by higher payroll costs and additional royalties under DMF
Page | 9
-
MOIL : INITIATING COVERAGE
Lower Return Ratios (vs. Historical Averages) Low Implied Multiples Impart Safety Against Price Drop
P/E P/B
Source: Company, HDFC sec Inst Research
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
FY13
FY14
FY15
FY16
E
FY17
E
FY18
E
RoIC (%) RoE (%)
%
-
2.0
4.0
6.0
8.0
10.0
12.0
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l-12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
EV/EBITDA (x) Average
SD+1 SD-1(x)
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l-12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
P/E (x) AverageSD+1 SD-1
(x)
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jan-
11A
pr-1
1Ju
l-11
Oct
-11
Jan-
12A
pr-1
2Ju
l-12
Oct
-12
Jan-
13A
pr-1
3Ju
l-13
Oct
-13
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
P/B (x) AverageSD+1 SD-1
(x)
Lower profitability to drag down the return ratios and valuations to historical lows
Page | 10
-
MOIL : INITIATING COVERAGE
MOIL Ltd: Can it escape Make in India?
MOIL GMDC NALCO NMDC
Market Cap (Rs bn) 33.4 27.5 102.2 367.8
Cash (as % of market cap)
Commodity exposure Manganese Lignite, Bauxite, Manganese,
Flourspar Mandate for all minerals in Gujarat
Aluminum, Alumina Iron Ore, Diamonds, Potash
Ministry Mines Govt of Gujarat Mines Steel
Forward integration
Small FeMn capacity operational (10,000 TPA)
Excess domestic capacity in Mn alloys limits downstream capex likelihood Focus to remain on increasing Mn ore production
Power plant of 2*125 MW is currently operational
Present across Al value chain. Also, currently on the drawing board: Alumina refinery (1 mTPA) Alumina refinery in Gujarat (1
mTPA) Overseas smelters
Pellet plant operational Putting up a steel plant for
Rs 155bn 2 steel plants on the anvil
(Karnataka and Jharkhand)
Other diversification plans/Capital misallocation options
May acquire Mn ore mines overseas
Wind/solar capacity
Several MoUs for cement, alumina, Mn Alloys in place
Wind/solar Nuclear Power plant with NPCIL 114 MW of wind capacity
Has been scouting for Potash assets globally
Stake in Legacy Iron ore, Australia
88.0%
12.0% Cash EV
37.8%
62.2%
Cash EV
54.6%
45.4%
Cash EV
52.9% 47.1%
Cash EV
Source: Company, HDFC sec Inst Research
Page | 11
-
MOIL : INITIATING COVERAGE
Peer valuation
Company MCap
(US$bn) EV
(US$bn) EV/EBITDA (x) P/E (x) FY16E FY17E FY16E FY17E
Mn Pureplay
South 32* 4.7 6.1 3.9 3.3 15.6 10.3 Eramet* 1.1 2.1 12.9 4.4 N/M N/M African Rainbow Minerals* 0.9 1.2 6.9 4.9 20.3 10.1 Domestic miners
Coal India (BUY) 32.6 24.5 8.3 8.4 13.2 13.1 NMDC (SELL) 5.6 2.6 5.9 6.3 11.0 11.1 GMDC* 0.4 0.2 6.6 5.3 9.1 7.9
MOIL* 0.5 0.1 2.1 2.7 13.5 15.3 Source: Companies, Bloomberg, HDFC Sec Inst Research, * Not rated Market data as of November 27, 2015 close, South32 and African Rainbow Minerals are June YE, Eramet is December YE Key Assumptions Key Assumptions US$/dmtu unless otherwise specified
FY13 FY14 FY15 FY16E FY17E FY18E
INR:US$ 54.36 60.36 61.16 65.00 66.00 66.00 Mn Ore volumes (mn T) 1.19 1.13 0.91 0.98 1.03 1.03 Benchmark Mn ore prices 5.10 5.29 4.22 2.75 2.75 3.25 MOIL Realisations 3.12 3.14 3.06 2.09 2.09 2.47 Blended EBITDA 1.51 1.65 1.53 0.55 0.49 0.75 Implied cash cost (C1) 1.81 1.63 1.73 1.74 1.78 1.90 Source: Company, HDFC sec Inst Research Note: All prices/costs normalized to benchmark Mn ore content (44%)
Key Sensitivities INR:US$ TP (Rs) 62 64 66 68 70
Benc
hmar
k M
n or
e pr
ices
(U
S$/d
mtu
) 2.75 199 204 210 215 220 3.00 214 220 226 231 237 3.25 229 235 242 248 254 3.50 244 251 258 264 271 3.75 259 266 274 281 288
Valuations remain inexpensive compared with global peers and domestic miners. Despite the macro headwinds, we believe the risk reward is favourable, given the large cash on B/S We model a modest recovery in the global Mn ore prices (currently at US$2.09/dmtu)
Page | 12
-
MOIL : INITIATING COVERAGE
Sales Break-up Production Break-up
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Realisations Falling Realisations and EBITDA
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
2.83
3.57
2.58
2.57 2.
91 3.28
2.15 2.38 2.55
2.00 2.
42
2.08
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Non-fines Fines TotalmT
3.15 3.37
2.52
2.32
3.11
3.40
2.73
2.38 3
.11
3.17
2.76
2.27
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Non-fines Fines TotalmTGlobal prices and demand have put pressure on both realisations and volumes for MOIL Realisations/profitability is expected to decline as MOIL cuts prices sharply in November
-
2,000
4,000
6,000
8,000
10,000
12,000
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
2HFY
16
Non-fines FinesRs/t
-
2,000
4,000
6,000
8,000
10,000
12,000
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
3QFY
14
4QFY
14
1QFY
15
2QFY
15
3QFY
15
4QFY
15
1QFY
16
2QFY
16
Blended realisation/t EBITDA/tRs/t
Page | 13
-
MOIL : INITIATING COVERAGE
Income Statement Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Net sales 10,213 8,233 6,572 6,974 8,168 Growth % 5.6 (19.4) (20.2) 6.1 17.1 Manufacturing expenses 2,205 1,369 1,598 1,739 1,926 Employee Expenses 2,561 2,628 2,975 3,273 3,463 SG&A Expenses 316 369 380 399 419 Other operating expenses 119 76 66 73 80 Operating profits 5,012 3,790 1,553 1,491 2,280 Operating Profit Margin (%) 49.1 46.0 23.6 21.4 27.9 Other operating income 535 368 130 137 144 EBITDA 5,546 4,159 1,684 1,628 2,424 EBITDA % 54.3 50.5 25.6 23.3 29.7 EBITDA Growth % 25.9 (25.0) (59.5) (3.3) 48.9 Other Income 2,499 2,798 2,573 2,280 2,260 Depreciation 352 451 507 604 702 EBIT 7,693 6,506 3,750 3,303 3,982 Interest 0 0 0 0 0 PBT 7,693 6,506 3,750 3,303 3,982 Tax 2,598 2,226 1,275 1,123 1,354 PAT 5,096 4,280 2,475 2,180 2,628 APAT 5,096 4,280 2,475 2,180 2,628 APAT Growth (%) 18.0 (16.0) (42.2) (11.9) 20.5 EPS 30.33 25.48 14.73 12.98 15.64 EPS Growth (%) 18.0 (16.0) (42.2) (11.9) 20.5
Source: Company, HDFC sec Inst Research
Balance Sheet Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E
SOURCES OF FUNDS
Share Capital 1,680 1,680 1,680 1,680 1,680
Reserves 29,593 32,137 32,929 33,429 34,376
Total Shareholders Funds 31,273 33,817 34,609 35,109 36,056
Deferred Taxes (165) 110 110 110 110
Long-term Provisions & Others 1,174 103 103 103 103
TOTAL SOURCES OF FUNDS 32,282 34,030 34,822 35,322 36,269
APPLICATION OF FUNDS
Net Block + CWIP 2,323 2,939 3,732 4,428 5,026
CWIP 690 529 526 526 526
Investments, LT Loans & Advs 673 840 840 840 840
Inventories 491 1,442 869 1,419 1,519
Debtors 1,198 1,150 1,150 1,150 1,150
Cash & Equivalents 29,020 29,362 29,936 29,190 29,439
ST Loans & Advances, Others 158 217 217 217 217
Total Current Assets 30,867 32,171 32,172 31,976 32,325
Creditors 70 35 35 35 35 Other Current Liabilities & Provns
2,201 2,415 2,415 2,415 2,415
Total Current Liabilities 2,270 2,450 2,450 2,450 2,450
Net Current Assets 28,596 29,722 29,723 29,526 29,875
TOTAL APPLICATION OF FUNDS 32,282 34,030 34,820 35,320 36,267 Source: Company, HDFC sec Inst Research
Page | 14
-
MOIL : INITIATING COVERAGE
Cash Flow Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Reported PAT 5,096 4,280 2,475 2,180 2,628 Non-operating & EO items 1,651 1,964 1,698 1,505 1,492 PAT from Operations 3,444 2,316 777 675 1,136 Interest expenses 0 0 0 0 0 Depreciation 352 451 507 604 702 Working Capital Change 2,099 (1,284) 573 (550) (100) OPERATING CASH FLOW ( a ) 5,895 1,483 1,857 730 1,738 Capex (720) (1,344) (1,300) (1,300) (1,300) Free cash flow (FCF) 5,175 139 557 (570) 438 Investments 0 0 0 0 0 INVESTING CASH FLOW ( b ) (720) (1,344) (1,300) (1,300) (1,300) Share capital Issuance 0 0 0 0 0 Debt Issuance (259) (320) 0 0 0 Interest expenses 0 0 0 0 0 Dividend (1,479) (1,714) (1,681) (1,681) (1,681) FINANCING CASH FLOW ( c ) (1,738) (2,034) (1,681) (1,681) (1,681) NET CASH FLOW (a+b+c) 3,437 (1,895) (1,124) (2,251) (1,242) Non-operating and EO items 1,651 1,964 1,698 1,505 1,492 Closing Cash & Equivalents 29,031 29,089 29,936 29,190 29,439
Source: Company, HDFC sec Inst Research
Key Ratios FY14 FY15 FY16E FY17E FY18E PROFITABILITY (%)
EBITDA Margin 54.3 50.5 25.6 23.3 29.7 APAT Margin 49.9 52.0 37.7 31.3 32.2 RoE 17.3 13.2 7.2 6.3 7.4 RoIC 115.1 77.6 17.0 12.8 18.1 RoCE 17.3 14.0 7.2 6.3 7.4 EFFICIENCY Tax Rate (%) 33.9 29.8 34.0 34.0 34.0 Asset Turnover (x) 1.6 1.3 0.9 0.9 0.9 Inventory (days) 18 43 64 60 66 Debtors (days) 72 49 60 56 48 Payables (days) 6 2 2 2 2 Cash Conversion Cycle (days) 84 89 122 114 112 Debt/EBITDA (x) N/M N/M N/M N/M N/M Net D/E N/M N/M N/M N/M N/M Interest Coverage N/M N/M N/M N/M N/M PER SHARE DATA EPS (Rs/sh) 30.3 25.5 14.7 13.0 15.6 CEPS (Rs/sh) 32.4 28.2 17.7 16.6 19.8 DPS (Rs/sh) 7.5 8.5 8.5 8.5 8.5 BV (Rs/sh) 186.2 201.3 206.0 209.0 214.6 VALUATION P/E 6.6 7.8 13.5 15.3 12.7 P/BV 1.1 1.0 1.0 1.0 0.9 EV/EBITDA 0.8 1.0 2.1 2.6 1.7 OCF/EV (%) 135.1 36.9 53.9 17.4 44.1 FCF/EV (%) 118.6 3.5 16.2 (13.6) 11.1 FCFE/Market Cap (%) 20.4 6.3 6.8 2.8 5.8 Dividend Yield (%) 3.8 4.3 4.3 4.3 4.3 Source: Company, HDFC sec Inst Research
Page | 15
-
MOIL : INITIATING COVERAGE
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
170
190
210
230
250
270
290
310
330
Nov
-14
Dec
-14
Jan-
15
Feb-
15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep-
15
Oct
-15
Nov
-15
MOIL TPDate CMP Reco Target
30-Nov-15 199 BUY 242
RECOMMENDATION HISTORY
Page | 16
-
MOIL : INITIATING COVERAGE
Disclosure: We, Ankur Kulshrestha, PGDBM, & Anuj Shah, MSc, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd . Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.
HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com
Page | 17