MOIL Stock Investment Research Report

Value Investment Analysis Report

2^nd December 2016

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Company and Operations

MOIL Ltd., previously Manganese Ore India Ltd., and is India’s largest producer of manganese ore. It is a mini-ratna state-owned manganese ore mining company and commands a market share of 50%. Headquartered in Nagpur, Maharashtra, MOIL operates six mines in Maharashtra and four in the state of Madhyapradesh. Of the ten mines seven are underground and three are open cast mines.

As on 31^st March 2016 MOIL holds mining leases for an area of 1613.61 hectares and has obtained new mining leases for 988.181hectares.

During the financial year 2015-16, MOIL produced 1.03 million tonnes of manganese ore.

Manganese is predominantly used in steel production and therefore its prospects are closely linked with that of steel industry.

Steel industry is experiencing a glut for the last couple of years owing to global and especially slowdown of Chinese economy. As a result of the recessionary conditions prices of almost all commodities including steel and manganese ore have crashed. Moil realized Rs.5911 per metric tonne as against Rs.8,233 earlier, a steep correction of 45%.

However, considering the huge infrastructure needs in India and very low per capita consumption of steel, MOIL has a bright future.

Basic Filtering Criteria:

Market Snapshot of the share of MOIL Company

Critical prima-facie Observations of MOIL Limited:

1. PE Ratio: MOIL’s PE Ratio is 39.55 is extremely higher than the maximum permitted 15 and well above the Ideal for Indian conditions of 10 and therefore does not pass the hurdle. The high PE is mainly due to low earnings or EPS and to some extent on account of increase in share price.
2. Price to Book Value Ratio: At 1.78, placed slightly above the maximum recommended 1.50 times the book value, and therefore the scrip fails to qualify on this front too.
3. Distance from 52 week low: The current price of Rs.365.80 is 103.79% away from the 52 Week Low of Rs.179.50. On this parameter the scrip is NOT in the desirable or affordable zone – rather it is very near the 52 Week High of Rs.394.
4. Dividend Yield: A dividend yield of 1.37% is not attractive. Low price realization and consequent low profit is the main culprit for the poor number for the company had distributed 48.55% of net profits as dividends.

In light of the above conditions, MOIL should have been rejected out right, but MOIL is a good company that had demonstrated consistent good profitability and had earlier qualified and found its place in our Portfolio 2K15. Therefore we will proceed with further evaluation.

A. Company Performance

Profitability Analysis

MOIL Limited. Profit and Loss Account (Rs. in Crores)	March 31' 2013	March 31' 2014	March 31' 2015	March 31' 2016
Net sales	967.12	1,021.28	823.25	628.74
% age rise (+) or fall (-)	7.51%	5.60%	-19.39%	-23.63%
Ore Raising	24.32	25.84	24.07
Material Consumed				17.34
Changes in Stock of WIP & FG	28.02	6.61	-94.81	-34.74
Personnel Expenses	262.03	256.09	262.77	301.23
Inter Unit Transfer	-9.85	-11.43	-11.28	-8.52
Other Expenses	228.03	242.98	263.46	262.09
Depreciation	33.03	35.18	45.08	52.65
Interest	0.00	0.00	0.00	0.00
SUB-TOTAL	565.58	555.27	489.29	590.05
Operating profit after interest	401.54	466.01	333.96	38.69
Other Income	235.27	303.32	316.60	252.20
Depreciation on Goodwill	0.03	0.00
Net non-operating income	235.24	303.32	316.60	231.36
Profit Before Tax	636.78	769.33	650.56	270.05
Provision for taxes	205.06	259.76	222.56	97.27
Profit After Tax (PAT)	431.72	509.57	428.00	172.77
EBDITA (Operating Profits)	434.57	501.19	379.04	91.34
EBDITA (Operating Profits) %	44.93%	49.07%	46.04%	14.53%
Depreciation	33.03	35.18	45.08	52.65
EBITA	401.54	466.01	333.96	38.69
EBITA %	41.52%	45.63%	40.57%	6.15%
Interest (Operating/ Relating to Business)	0.00	0.00	0.00	0.00
Interest Cost to Sales - %	0.00%	0.00%	0.00%	0.00%
EBT	401.54	466.01	333.96	38.69
EBT %	41.52%	45.63%	40.57%	6.15%
Net Non-Operating Income	235.24	303.32	316.60	231.36
PBT	636.78	769.33	650.56	270.05
PBT %	65.84%	75.33%	79.02%	42.95%
Income Tax	205.06	259.76	222.56	97.27
PAT	431.72	509.57	428.00	172.77
PAT %	44.64%	49.90%	51.99%	27.48%

Remarks:

1. MOIL’s profitability margins were excellent till FY 2014-15 year but plunged in the FY 2015-16 due to global recessionary conditions and low commodity prices.
2. Zero interest cost has certainly rescued the company in the difficult times.
3. Even though EBT dipped to 6.15%, healthy non-operating income from fixed deposits restored the PBT to appreciable 42.95% and PAT to 27.48%.

MOIL’s profitability ratios were excellent, come under stress recently, will revive once commodity prices improve but how much time it will take is difficult to predict

Balance Sheet Analysis:

MOIL Limited. Balance Sheet (Rs. in Crores)	March 31' 2013	March 31' 2014	March 31' 2015	March 31' 2016
LIABILITIES
Short-term borrowings	-	-	-	-
Sundry creditor	26.51	6.96	3.51	3.39
Other current liabilities & provisions	248.65	220.08	241.46	257.19
Total Current Liabilities	275.16	227.04	244.97	260.58
Long Term Loans	-	-	-	-
Long Term Provisions	91.25	112.81	7.86	8.62
Other long term liabilities	2.85	4.64	13.41	12.17
Total Term Liabilities	94.10	117.45	21.27	20.79
Total Outside Liabilities (TOL)	369.26	344.49	266.24	281.38
Share capital	168.00	168.00	168.00	168.00
Reserves & Surplus	2597.64	2959.33	3213.70	3283.79
Net Worth	2,765.64	3,127.33	3,381.70	3,451.79
TOTAL LIABILITIES	3,134.90	3,471.82	3,647.94	3,733.16
Cash and bank balances	2276.78	2792.83	2829.89	2851.19
Receivables	288.10	113.17	107.24	142.05
Inventory:	51.48	49.11	144.22	162.99
Other current assets	230.63	131.57	135.78	114.57
Total Current	2,846.99	3,086.68	3,217.13	3,270.79
Net Block	222.66	222.65	285.28	303.53
Capital Work in Progress	26.97	68.82	52.55	69.13
Total Tangible Assets	249.63	291.47	337.83	372.66
Non Current Investments	4.21	4.21	4.21	1.29
Long Term Loans & Advances	0.77	55.69	57.45	43.14
Other Non Current Assets	22.44	23.93	22.33	21.55
Total Non-Current Assets	27.42	83.83	83.99	65.98
Intangible assets under development	10.86	9.83	8.99	25.01
TOTAL ASSETS	3,134.90	3,471.81	3,647.94	3,734.44
Tangible Net Worth (TNW)	2,754.78	3,117.50	3,372.71	3,426.78
Current Ratio	10.35	13.60	13.13	12.55
Total Outside Liabilities/ Tangible Net Worth (TOL/ TNW)	0.13	0.11	0.08	0.08
Total Term Liabilities/Tangible Net Worth	0.03	0.04	0.01	0.01

Highlights:

1. MOIL is totally debt-free, which is a great boon.
2. Current ratio 10 and above is well over the stipulated 2.
3. TOL/ TNW ratio is very healthily at 0.08 is extremely healthy.
4. Long-term Deb-Equity ratio is attractively far less than the recommended not more than 1.

Therefore on the balance sheet front all the parameters of MOIL are very strong.

Cash Flow Analysis

MOIL Limited. Cash Flow Statement (Rs. in Crores)	March 31' 2013	March 31' 2014	March 31' 2015	March 31' 2016
Net Cash Generated from Operations	343.41	740.18	27.54	-23.95
Cash Flow from Investing Activities:
Interest from Fixed Deposits			275.58	243.29
Purchase of Fixed Assets	-47.66	-76.27	-94.84	-97.83
Net Cash flows form Investing Activities	-47.66	-76.27	180.74	145.46
Cash Flows from Financing Activities:
Dividends	-107.39	-147.87	-171.35	-101.31
Net Increase / (decrease) in cash for the year	188.36	516.04	36.92	20.20
Percentage of Free Cash Flows Distributed as Dividend & Dividend Tax	31.27%	19.98%	622.25%	-422.94%
Percentage of Free Cash Flows Invested in Fixed Assets	13.88%	10.30%	344.42%	-408.41%

Highlights:

1. MOIL is a company with a small balance sheet size with modest turnover, profits and cash flows, even though the profitability margins are sizeable.
2. MOIL was generating handsome free cash flows from its operations. In the year ending 31^st March 2015, they fell steeply and in 2016 they turned negative, again on account of low price realization.
3. A certain absolute amount is distributed as dividend – the percentage of free cash flows varying.
4. MOIL could maintain both dividends and investment in fixed assets in FY 2015-16 on account of healthy non-operating income, despite free cash flows being negative.
5. A small proportion of free cash flows is being invested in expansion, perhaps based on needs.

On the cash flows front MOIL’s performance is commendable.

Distribution of net Profits

Let us study the dividend distribution pattern of MOIL:

(Rs. in Crores)	Mar ' 13	Mar ' 14	Mar ' 15	Mar ' 16
Reported net profit	431.72	509.56	428.01	172.98
Earnigs before appropriation	446.24	521.78	430.93	182.72
Equity dividend	77.41	104.59	114.25	66.69
Preference dividend	-	-	-	-
Dividend tax	14.99	21.41	28.55	17.31
Retained earnings	353.84	395.78	288.13	98.72
Percentage of Net Profits Distributed as Dividends	17.93%	20.53%	26.69%	38.55%

The company had been stingy in distributing dividends in the years ended on 31^st March 2012 and 2013, even though the profits were handsome. It has been gradually increasing in the percentage to a health 30%, perhaps to comply with the government order to pay a minimum of 30% profits as dividends.

It is noteworthy that in FY 2015-16 the company paid 38.55% of profits as dividends despite the profits being low mainly with the backing of appreciable non-operating income.

On this count the company performance is very good.

Uninterrupted Dividend Payment History 

Year	Dividend (%)
2016	50%
2015	85%
2014	75%
2013	55%
2012	50%
2011	70%

The above table shows uninterrupted dividend payment for the last 6 years. Besides the table, perusal of annual reports available on the company’s website show that MOIL has been paying dividends without break at least from FY 2000-01 onwards.

On the uninterrupted dividends payment front MOIL has a good track record.

B. Market Conditions

Dividend Yield:

Dividend Yield is a combination of both the company’s dividend policy and performance as well as market condition. A dividend yield of 1.37% is poor, but this low yield is as a result of halving of dividends in FY 2015-16 compared to last year (on account of fall in profits) as well as steep price increase of the share.

On the dividend yield front presently the share does not qualify.

Five-year price graph:

Five Year Price Graph of MOIL Share

From the graph we can see that the market has been chasing this scrip, pushing the price from around Rs.183 by end February 2016 to the current level of Rs.365.80, a whopping 100% in a span of nine months.

In conclusion the five year price graph of MOIL shows that presently the share is at it’s five year peak and this is not a favourable market condition for buying the stock.

Five years returns (price rise):

Five Year Rise in MOIL's Share Price

As with the five-year price graph, the five years return of MOIL share of 51.19% indicates that the price of the share has appreciated half in the past five years. Therefore the market condition under this parameter too is slightly unfavourable.

Distance from 52-Week Low:

52-Week Low: Rs.179.50

52-Week High: Rs.394.00

Current Market Price (CMP) on 2^nd December 2016: Rs.365.80

The current price of Rs.52 is 103.78% away from the 52 Week Low.

On this parameter the scrip is NOT in an attractive zone – rather it is very near the 52 Week High of Rs.394.

Final Conclusions:

1. The above brief analysis proves that MOIL without doubt is a great company that has fallen into bad times due to global economic conditions.
2. Company has matured and sales have become stagnant in the last few years.
3. The EBDITA, EBT margins were excellent and the company is consistently profitable for many years into the past. In the last year the EBT has plunged to 6.15%. However owing to healthy non-operating income, the PBT has recovered to a very attractive 42.95%
4. MOIL does not carry any debt on its books.
5. All liquidity and solvency ratios demonstrate solid strength.
6. Free operating cash flows were negative last year but were good earlier.
7. PE Ratio of 39.55 is on account of both low EPS and market conditions.
8. Price to Book Value Ratio (P2BV) of 1.78 is beyond the permissible 1.50.
9. The market condition parameters of five-year price graph and distance from 52 Week low and five year returns do not favour buying the share at present. The uninterrupted dividend paying track record is good. The company has not been very generous in the past. As it started becoming liberal ast the government’s instance it has been hit by bad market conditions. Therefore on the dividend yield front the performance has been mixed.

Final Investment Advice:

1. MOIL is a good company but presently both the company’s performance and market conditions are not favorable.
2. Company’s sales have been stagnant. So do not expect growth – company may produce consistently excellent but stagnant EPS, dividends in future – which is not bad though.
3. Wait for a price correction and PE and P2BV Ratios come under acceptable levels.
4. This is not the time for investments in this scrip.
5. You may start buying the share when PE Ratio is below 15 and P2BV is below 1.50.
6. Eventually you must include MOIL in your portfolio and without it your portfolio will be incomplete but the proportion may not be more than 5% the size of your portfolio.

Post Disclaimer: Opinions expressed here are the author’s personal opinions. Market conditions have a great bearing on many end results discussed in this report. No disrespect is intended towards the company, it’s management. Investors are advised not rely blindly on the opinions expressed herein but to exercise their own judgment. Neither the author nor the blog shall be responsible for any loss suffered by either acting or not acting based on the opinions expressed herein.

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