MOIL: An Exceptional PSU

Manganese Ore India Ltd (MOIL) operates 10 mines. Six of these are located in the Nagpur and Bhandara districts (Maharashtra) and four in the Balaghat district (Madhya Pradesh) and extract manganese dioxide. Manganese dioxide is used by dry-battery industry and to make ferro-manganese and related alloys which are used in the steel industry.

MOIL has itself set up ferro-manganese plant (capacity of 10,000TPY—tonnes per year) and electrolytic manganese dioxide (EMD) plant (1,000TPY) for value addition to manganese ore. It plans to expand the capacity of ferro-manganese plant and is setting up a new silico-manganese plant through joint ventures with Rashtriya Ispat Nigam Limited and Steel Authority of India Limited. MOIL fulfils about 50% of the total requirement of manganese dioxide ore in India which is over 1,093,363 tonnes. Sandur Manganese produces about 300,000 tonnes in a year.

MOIL’s financial performance has been steady. For the quarter ended September 2014, MOIL’s quarterly sales were Rs242.87 crore (Rs226.78 crore), up 7.10%, and its quarterly net profit was Rs111.14 crore (Rs90.57 crore), up 22.71%. For the year ended March 2014, MOIL’s annual sales were Rs1,021.28 crore (Rs967.12 crore), a rise of 5.60%, and its annual net profit was Rs509.56 crore (Rs431.72 crore), an increase of 18.03%. With a market share of 50%, it is the largest producer of manganese ore in India.

Over the past five quarters, the average growth in sales was 3% and the average growth in operating profit was 10%. MOIL works at a higher operating margin of 47%. Its future prospects appear bright due to the government’s strong stress on infrastructure development which will boost the demand of steel in the country; in turn, this will increase the demand of manganese ore as well.

The shareholding pattern of MOIL includes 80% with the government, 7.13% is with foreign institutional investors, 2.58% with domestic institutional investors and the remaining 10.29% is with the retail shareholders.

MOIL is a dividend-paying company for many years; this year, it has already paid interim dividend @40% in January 2014. The board of directors of the company has recommended a further final dividend @35%. Thus, the total dividend for FY13-14 works out to 75% compared to 55% in FY12-13.

What I really like about the stock is its valuation. At a time when it is virtually impossible to get a mid-cap or large-cap stock with a low valuation relative to its performance, MOIL’s market-capitalisation is 10.64 times operating profit, based on trailing four quarter results ending September 2014. The return on net worth is 16% and the return on capital employed is 15%, as the company is debt-free. The face value of the MOIL’s share is Rs10 and its book value is Rs186.15. The share price had risen from a 52-week low of Rs210.50 on 10 February 2014 to a 52-week high of Rs341 on 26 May 2014. The share was trading at around Rs312 on 4th December 2014 and is an attractive buy at the current market price.