Sharekhan Bets On This Small Cap Mining Sector Miniratna Stock, Recommends Buy For 23% Gains

Sharekhan in its recent report on MOIL Limited had rated the stock "BUY" with a target price of Rs 205 per share. The stock is expected to soar up to 23% from its current level considering the given target price by Sharekhan. MOIL is a Miniratna Category-I company engaged in the mining of manganese ore and is the largest manganese ore producer in the country. MOIL operates 11 mines, seven located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. It is a small cap Mining sector PSU under the Ministry of Steel. It has a market capitalisation of Rs 3,398.20 crore.

Stock Outlook & Returns

The last traded share price of the MOIL on NSE is Rs 167.15 per share, down 2.05% compared to its previous close. Its 52 week low is Rs 137.30 apiece on 20 June 2022 and its 52 week high level is Rs 197.40 apiece.

The stock over the 5 years has given mixed returns. In a week it surged 4.31%, and in 3 months surged 10.08%. In the past 1 year, it has fallen 1.12% and gained 8.29% in 3 years. In the past 5 years, it gave a 31.03% negative return. 

Recent price hike hints at improving manganese ore price environment

The international manganese ore price has stabilised and is hovering ~6.1/dmtu (an increase of 7% since November 2022). MOIL has also taken steep price hike of 7.5%-15% for various grades of manganese ore for January 2023 post five consecutive price cuts during August-December 2022. The price hike would support a recovery in MOIL's realisation/margins from Q4FY23 onwards. "We expect MOIL's margin to post strong recovery of 17%/5% to Rs. 4,663/Rs. 4,883 per tonne in FY24E/FY25E as compared to our estimate of 11% decline in FY23 to Rs. 3,986/tonne," the brokerage has said.

Removal of steel export duty to support volumes in H2FY23; strategic plan to increase production to 3mtpa by 2030

MOIL registered robust manganese ore production growth of 60%/18% m-o-m to 1.2/1.4 lakh tonnes and sales volume growth 82%/91% m-o-m to 0.85/1.64 lakh tonnes in November/December 2022. We estimate a strong production/sales volume growth of 40%/43% q-o-q to 3.4/3 lakh tonnes for Q3FY23. Furthermore, a likely increase in domestic steel production (given recent withdrawal of export duty on steel) would drive demand for manganese ore and Q4 is seasonally strong for MOIL. MOIL has prepared a strategic plan to enhance its production to 3 mtpa by 2030, which implies a CAGR of 12% over FY22-30E.

 

Strong balance sheet and decent dividend yield provides comfort

MOIL has a strong balance with cash and cash equivalent of ~Rs. 1,030 crore as on September 2022, which is 30% of its current market capitalisation. Strong balance sheet and healthy dividend yield of 3-4% provide comfort to investors.

Valuation - Maintain Buy on MOIL with a revised PT of Rs. 205

Sharekhan said, "We have increased our FY23- 24 earnings estimate to factor higher volume/margin assumption and have also introduced our FY25 earnings estimate in this report. The stock is attractively valued at 3.2x/2.5x its FY2024E/ FY2025E EV/EBITDA, considering expectation of earnings recovery and healthy dividend yield of 3-4%. Hence, we maintain a Buy rating on MOIL with an increased PT of Rs. 205 (revision in PT reflects increase in FY24 earnings estimate)."

Key Risks

Lower steel output amid recent policy changes could affect manganese ore demand. Lower-thanexpected manganese ore prices could affect the company's profitability and our view on the stock.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.