Stock Market Result Update on MOIL for 1QFY2012

Stock Market Result Update on MOIL for 1QFY2012 with a Neutral recommendation.

MOIL’s 1QFY2012 net sales were lower than our estimates, while net profit was slightly above our estimate. Net sales and net profit decreased by 40.1% and 40.3% yoy, respectively, mainly due to a steep decline in manganese ore prices. We maintain our Neutral view on the stock.

Falling prices hit MOIL’s profitability: During 1QFY2012, MOIL’s manganese ore sales volume declined by 18.9% yoy to 221kt as some of MOIL’s customers preferred to import manganese ore on account of lower prices prevailing in the international markets. Average blended realisation declined by 28.7% yoy to `8,300/tonne on account of oversupply in global markets. Thus, net revenue declined by 40.1% yoy to `210cr. During the quarter, other expenditure increased by 13.2% yoy to `35cr (16.7% of net sales in 1QFY2012 vs. 8.8% of net sales in 1QFY2011). EBITDA margin dipped massively by 1,074bp yoy, which led to EBITDA declining by 49.2% yoy to `127cr. Other income grew by 46.1% yoy to `43cr. Consequently, net profit declined by 40.3% yoy to `109cr.

Outlook and valuation: Manganese ore prices have gradually slumped by over 40.0% since January 2011 on the back of oversupply in global markets. We expect manganese ore prices to remain under pressure in the near-to-medium term until inventory de-stocking takes place. MOIL is expanding its production capacity at existing mines to 1.5mn tonnes by CY2015 from 1.0mn tonnes in FY2011. However, given the recent slump in manganese ore prices, we expect margins to remain under pressure during FY2012 and FY2013.