Brokerage form, Sharekhan is bullish on metal and mining company, MOIL and sees strong potential for growth in the stock. The firm has set a price target of Rs 220 on the stock as against the current market price of Rs 178.
Sharp increase in manganese prices to benefit the company
According to Sharekhan, the improved pricing environment with 10-15% price hike by MOIL Limited in March 2022 is slated to drive margin expansion going ahead.
"The international manganese ore price has witnessed a sharp rally of 36% in CY2022 year to date to $8.6/dmtu due to supply concerns amid rising global geopolitical tensions. MOIL has taken net price increase of 5-12.5% (January price cut of 2.5-5% and March price hike of 10-15%) in Q4FY2022 for different grades of manganese ore. Thus, we expect MOIL to sustain improvement in its realisation (grew by 2.8% q-o-q in Q3FY2022) and margin (increased by 73% q-o-q to Rs. 5,295/tonne in Q3FY2022) in the coming quarters," the brokerage has said.
Volume recovery and improving realisation to revive earnings
MOIL has taken net price increase of 5.0-12.5% (January price cut of 2.5-5.0% and March price hike of 10- 15%) in Q4FY2022 for different grades of manganese ore.
"Additionally, international manganese ore price has rallied by 36% in CY2022 YTD and the same would support MOIL's realisation and margin in the coming quarters. Manganese ore demand is likely to improve, given expectation of higher domestic steel production over CY2022-CY2023 and the same bodes well for volume growth of MOIL.
Thus, we expect an EBITDA/ PAT CAGR of 30%/27% over FY2021-FY2024E for MOIL, led by higher margins (rise in share of high-grade manganese ore) and revival in volumes," the brokerage has said.
Strong balance sheet
According to Sharekhan, the strong balance and decent dividend yield provide comfort. MOIL has a strong balance with cash and cash equivalent of Rs. 1,725 crore as on September 2021, which is 47% of its current market capitalisation.
Maintain Buy on MOIL with an unchanged price target of Rs. 220
According to Sharekhan, the stock is attractively valued at 2.3x its FY2023E EV/EBITDA, considering expectation of a strong volume/margin led earnings recovery (expect a 27% PAT CAGR over FY2021-FY2024E), given expectations of higher steel production and improving international manganese ore prices.
"Hence, we maintain a Buy rating on MOIL with an unchanged price target of Rs. 220," the brokerage has said.
The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.