MOIL…Issued at Rs 375….High of Rs 591 on Listing…Dropping to Rs 462 in just a day…..What now…Buy…Hold..Sell ?

Tony, Shambu & Swaroop….this blog on MOIL is in response to your requests….but will serve the interests of all readers

As expected MOIL IPO received overwhelming subscription….Issued at Rs 375 with a 5% retail investors discount……and as expected it listed quite marvelously on December 15….reaching a High of Rs 591 on BSE…reacting sharply to close at Rs 466….then yesterday seeking another Low of Rs 451 before closing at Rs 462

What Now ?….Does it represent a Buying Opportunity at Rs 462 or will it drop yet further closer to it’s IPO Price of Rs 375 ?….Should Allottees who have yet not sold and new buyers continue to hold MOIL ?

My clear sense is that at Rs 462,MOIL appears fairly valued….at 12 Earnings Multiples for FY 2011 Projected EPS of Rs 39…..I am more concerned with some serious risks that MOIL is facing    

  • The Proposed Mines & Minerals (Development & Regulation) Bill 2010 that seeks to replace the 1957 Act stipulates that the mine lease holder will have to set aside 26% of the Net Profit from the Mine as an annuity to the State Government towards compensation,assistance and employment for the rehabilitation and settlement of the tribals and people who stay around the Mines
  • Technological Advances has reduced the consumption of Manganese Ore in the Production of Steel…From 46 kgs of ferro manganese consumed to produce a tonne of steel,the figure now stands at 30 kgs and in some industralised countries has dropped to even 10 kgs…this will impact the demand for Manganese Ore
  • The Fortunes of the Manganese Ore Miners is inextricably linked to the Fortunes of and Demands from the Steel Companies…Manganese is the fourth most used Metal after Iron,Aluminium and Copper….Over 90% of the World’s production of Manganese is utilised for the desulphurisation and strengthening of Steel…The Recession of 2008/9 saw the Steel and Managanese Ore Prices drop 60% from their peak …Have a Look at this table for MOIL

MOIL’s Manganese Ore Statistics

 

FY 2008

FY 2009

FY 2010

Production (tpa)

1364575

1175318

1093363

Sales (tpa)

1392188

1023486

1175230

Sales in Rs Crs

905

1187

910

Average Sales price/tonne in Rs

6501

11600

7743

PAT in Rs Crs

462

690

466

OPM %

 

71

62

NPM %

 

53

48

FY 06 and FY 07 PAT was way below at Rs 113 crs and Rs 131 crs respectively

  •  In FY 2011 the Fortunes have revived and Average Sales Prices per tonne have again crossed Rs 11000 for Manganese Ore….however the volatility over the past five years is a matter of concern
  • The last estimates show that World Reserves are 5200 Million Tonnes of Manganese Ore…South Africa holds 76.9% of these,followed by Ukraine at 10% and Australia a shade over 3% and India a shade under 3%….India has become a net importer of high grade Manganese Ore in the last three years from being a net exporter….yet South Africa’s  dominance in Reserves can impact World Prices as they can increase exports significantly once their sea,road and rail infrastructure strengthens…China is the world’s largest producer of Steel but holds just about 2% of the World’s reserves of Manganese Ore…so China Demand and Supply Situation will dictate World Prices

So what is MOIL doing to tackle these Risks ?

  •  MOIL has entered into 50:50 JV in Chattisgarh with SAIL in 2008 to set up projects at a  cost of Rs 392 crs to produce 31000 tpa of Ferro Manganese and 75000 tpa of Silico Manganese…this high value addition products will add to profitability and margins
  • MOIL has also set up a similar 50:50 JV  in Andhra Pradesh with RINL in 2009 to set up projects at a cost of Rs 206 crs to produce 20000 tpa of Ferro Manganese and 37500 tpa of Silico Manganese
  • At a cost of Rs 300 crs it plans to deepen the mining depth from current 360 meters to 660 meters at it’s largest Mine at Balaghat in Madhya Pradesh…currently MOIL operates Ten Mines,six at Nagpur and Bhandara in Maharashtra and Four in Balaghat in Madhya Pradesh….all ten are over 100 years old….only three are opencast mines…Dongri Buzurg Mine in Bhandara produces Manganese Dioxide used in the dry cell industry…Rs 180 crs is being spend on this mine to expand production…In October 2009 the Mines Ministry has also reserved @815 hectares in Maharashtra for MOIL…MOIL has applied for prospecting licenses for this area…..all these efforts will help MOIL in achieving its target to scale up production from the current 1.15 mtpa to 1.5 mtpa by  2015/16  
  • MOIL is already one of the lowest cost producer of Manganese in the World…it has set up a wind farm to generate power of 4MW for captive use…in FY 10 it generated 3.3 MW
  • World Steel Capacities till 2009 end were 1750 million tonnes with Production at 1223 Million tonnes….India is expected to produce 65 Million tonnes this year and is expected to move from the fifth largest producer in the World to the second largest by 2015/16…As at October 1,2010,MOIL had 21.7 million tonnes of proven and probable reserves (55% of which have an average manganese content of 40% and above and 27% has manganese content of 36% to 39.9%) and 69.5 million of measured,indicated or inferred reserves…Being debt free and holding Cash at Rs 1763 crs at September 2010 (Rs 104/share) MOIL is expected to leverage on growing domestic demand for Steel as the Government plays out the Rs 1.73 trillion outlay on Infratructure as stated in the last budget…In fact Steel Capacity from 73 millions tonnes is expected to cross 120 million tonnes by 2012    

MOIL’s Financials & Basic Price Multiples on Earnings and Networth

 

FY 2009

FY 2010

HY FY 2011

Sales in Rs Crs

1284

965

635

Total Income

1408

1102

696

PAT in Rs Crs

690

466

331

Equity in Rs Crs

28

(FV 100)

168

(Post 5:1 Bonus and Sub-division to FV Rs 10)

168

(Post 5:1 Bonus and Sub-division to FV Rs 10)

Reserves in Rs Crs

1293

1509

1840

Networth in Rs Crs

1321

1677

2008

Book Value in Rs

4718

100

120

Annualised EPS in Rs

2464

27.7

39

OPM %

71

62

70

NPM %

53

48

52

P/E Multiple

P/BV Multiple

 

At CMP Rs 462 and Market Cap at Rs 7760 crs

 

 

16.7

4.62

11.8

3.85

 

 

FY 06 and FY 07 PAT was way below at Rs 113 crs and Rs 131 crs respectively

 

PEER GROUP

 

CMP

 

(Rs)

Projected PAT FY 11

(Rs Crs)

Equity

 

( Rs Crs)

Projected FY 2011 EPS

( Rs)

 

P/E Multiple

MOIL

462

650

168

FV Rs 10

39

12

Sandur Manganese

725

80

8.8

FV Rs 10

91

8

NMDC

256

5500

396.5

FV Rs 1

14

18

Sesa Goa

295

3000

86

FV Rs 1

35

8+

My sense is that MOIL applied some make up to it’s current year financials to look a little more attractive as it came out with it’s IPO ….Going Forward the Volatility in Prices of Manganese Ore based on the swings in Fortunes of the Steel Industry will guide Earnings….so keep an eye on the Price per tonne of Manganese Ore….last three years the cycles have shown average extremes of Rs 6500 to Rs 11600…MOIL’s scale of Operations is just a percentage of that of Giant NMDC….and thus MOIL’s Share Price  will reflect lower relative Multiples….at 12 times Forward FY 11 EPS,my sense is that MOIL is at present fairly priced….Any significant deviation from projected PAT of Rs 650 crs this year will impact MOIL’s Share Price….An Earnings Multiple Range of of 10-15 is being established….Share Price will move past Rs 550 only if there is a sense of higher earnings than Rs 650 crs this year and markets will then sustain higher PE Multiple of 14 and 15…On the downside the IPO Price of Rs 375 can be touched if actual PAT drops into the Rs 500-Rs 550 crs range for FY 11,offering an EPS of Rs 30…likely if it has to expense 26% of profits for rehabilitation as per the new Bill Proposed  read more

Interesting and Amusing….Shree Ganesh Jewellery House Ltd prices it’s IPO at Rs 260…lists much lower on April 9,2010 and closes at Rs 163…and on this first day itself Standard Chartered Bank (Mauritius) Limited A/c Emerging India Fund sells at a huge loss,over half a million shares in a Bulk Deal at Rs 169.23 !

The Listing of Kolkata based Nilesh and Umesh Parekh promoted Gold Jewellery House,Shree Ganesh Jewellery House Ltd on Friday,April 9,2010 has spooked everybody

The IPO was priced at the lower band of Rs 260,but listed lower and crashed to 160 levels pretty fast

……An interesting Bulk Deal caught my eye on this first day of listing itself…Standard Chartered Bank (Mauritius) Limited Emerging India Fund (SCBMLEIF) sold 531484 shares at Rs 169.23 aggregating Rs 8.99 crs

I checked the Prospectus and found that they were not part of the Pre IPO Non Promoter Shareholders…of these there were merely two…Shares were allotted in August 2009 at Rs 300,after conversion of fully convertible debentures to Bennet Coleman who ,after a 1:1 Bonus in September 2009 ,now hold 333334 shares at a cost of Rs 150 aggregating Rs 5 crs Investment and Credit Suisse PE Asia Investments (Mauritius) Limited who had invested Rs 80 crs in a CCP Issue and after conversion at Rs 300 and the bonus held 5333334 shares also at a cost of Rs 150…but now hold 3200000 shares after offering for sale shares in the recent IPO

The March 2010 Book Building IPO was made in the Price range of Rs 260-Rs 270,with Rs 260 finally fixed as the Issue Price….It was for 14269831 shares aggregating Rs 371 crs…of this  the fresh issue component was Rs 316 crs through 12136497 shares and an Offer for Sale by Credit Suisse of 2133334 shares aggregating Rs 55.47 crs

In fact SCBMLEIF also does not feature as an Anchor Investor…Of these there were three…IFCI,India Max Investment Fund and Bank Muscat India Fund who together committed Rs 65 crs for 25 lakh shares at Rs 260

The Issue was oversubscribed 1.96 times…QIB portion 1.38 times…Non Institutional Portion 6.12 times and the Retail Portion 1.39 times

So,I assume SCBMLEIF must be a FII allottee in the IPO at Rs 260….Selling off at Rs 169 levels and at a huge Loss of  nearly Rs 91 per share on the first day of listing begs the question “But Why!?”…the loss is Rs 4.83 crs as the Investment was Rs 13.82 crs

As I blog this,markets have just closed at 3.30 pm on Monday,April 12,2010 and the second day of listing for Shree Ganesh Jewellery House and it’s share price is yet Rs 163

Financials show a post IPO Equity of Rs 60.68 crs (FV Rs 10,Promoters hold 70% +)) and a Post IPO Networth estimated to be around Rs 900 crs ( Rs 481 crs at 30/9/2009 + Rs 100 crs second half profit + Rs 316 crs IPO Proceeds to the Company)…that’s a Book Value of close to Rs 150…Debt was Rs 377 crs at the half year at 30/9/2009….After recording a PAT of Rs 80 crs for the half year,the full year FY 10 PAT should be over Rs 180 crs and close to Rs 200 crs…that’s an EPS of atleast Rs 30…the Earnings Multiple is just over 5 times with the Share Price of Rs 163 and under 9 times at the issue Price of Rs 260 and the Book Multiple is just over 1 read more

S Kumars up 18% today at Rs 57…Interesting Retail Play in 2010

On January 25,2010,I had blogged of an interesting Bulk Deal..Merrill Lynch buying S Kumars at Rs 47.60

Two Interesting Bulk Buys…Essar Oil by LIC at Rs 140 and S Kumars by Merrill Lynch at Rs 47.60

This Kasliwal company has zoomed past 18% today to Rs 57…as it has plans to unlock value with Brands ‘Belmonte’ and ‘Reid & Taylor’…an IPO in the offing for the latter maybe? watch this scrip in 2010…on our advice,some of my clients hold it from last year in their ‘Growth Segment’ of their Equity Portfolios…It’s a Retail Play 

Cheers ! 

Rigging in Rama Pulp & Papers on the BSE ? Evidence of orchestrated Play? be careful ..has dropped from Rs 35 to below Rs 33 today

I’m not going into the Merits of Rama Pulp…it may be just all Pulp !

I leave it your judgement….this is the sequence of events

March 9,2010….I receive an unsolicited SMS,twice ,as must have thousands of others…Reproduced verbatim below

Message Details : Sender :(no name) TA-STKFANCY….Time Received : 13:15:39

Message in Verbatim: 

Buy for intraday JACKPOT: Buy RAMA PULP (502587) SL 35 Intra trg upper freez,Buy in bulk,FII buying in huge,Co contracted with WALLMART,

March 11,2010….I notice lakhs of quantities traded on March 10,2010  upto a Price of Rs 38.35 on the Bulk Deals Sement Reposting on the BSE Website…In fact seems there has been regular Bulk Deals happening in Rama Pulp this year and same Names appear in multiple Deals

In Many cases the Same names appear in Huge Buy Deals as also in Huge Sell Deals on the same day !

BSE has just closed…it’s past 3.30 pm and I check the Share Price of RAMA PULP…It has registered a High/Low of Rs 35/Rs 32.65 and closed down from yesterday at Rs 33.15 with a traded volume of 3.99 lakh shares…and interestingly a Two Week Average Traded Volume of is 12.96 lakh shares !…the Market Cap of this Company is a mere Rs 25 crs 

Be careful !…clearly seems to be an orchestrated move to seduce suckers to buy through unsolicited SMS recommendations with an objective to create a hype and market to offload huge quantity of shares by Sellers

BSE & SEBI need to figure out what’s the game here,if any, in RAMA PULP and who’s playing it, for the benefit of all Investors

In fact similar gameplans and ploys are visible in many scrips….cast a shadow over the sanctity of Trading on our Bourses…Transperancy and Credibility Issues

Two Interesting Bulk Buys…Essar Oil by LIC at Rs 140 and S Kumars by Merrill Lynch at Rs 47.60

Among the Bulk Deals that took place last week,two interesting purchases caught my eye…..even though I’m not a great Fan of the Ruias (Essar Oil) or the Kasliwals (S Kumars)…both gravely let down shareholders and other Stakeholders in the 1990s and even into the 21st Century…there were several Corporate Governance Issues too 

  • 20 Million Shares of ESSAR OIL (currently Rs 141/142) were picked up by LIC at Rs 140 on January 22,2010 in a Rs 280 crs deal….seller was Matterhorn

and

  • 1.375 Million Shares of S KUMARS NATIONWIDE (currently at Rs 45) were picked up by MERRILL LYNCH CAPITAL MARKETS ESPANA at Rs 47.60 on January 20,2010 in a Rs 6.55 crs deal

S Kumars is already one of our second half 2009 SS 2 Recommendations

Essar Oil was spotted by us as a SS 3 Multibagger at Rs 4/5 in 2003/4…Over the past 6 years Essar Oil has reached the following Highs….it taught us a lesson though…If you have caught it early,Do not Sell too Early,even if you see 200% Appreciation in the same year…that would be Rs 5 to Rs 15 ! in 2004………If your’e catching a Train from Mumbai Central to Ahmedabad,do not get off at Borivali !…..Stay with a good scrip which has good to great potential  for the long term over many years and it will give you quantum appreciation…Selling off in 2004/5/6 would have given strong % returns…but not as strong as from 2007 !,even considering the decline in 2008 and 2009 

Year…….High……..Absolute % Appreciation from 2003/4 at Rs 5…..In Number of Years

2004…….33……..560 %……One Year

2005……..48…….860 % ……Two Years

2006……..80……..1500%…..Three Years

2007……..333……6560 %…..Four Years

2008……..380……7500 %…..Five Years

2009……..194……3780%……Six Years

2010 till date….162…..3140%…..Six + Years

Clearly 2007 was a spectacular Year for Essar Oil when from an earlier Year 2006 High of Rs 80 it zoomed 316 % from this High to a New High of Rs 333 in 2007 

Watch out for both these Scrips in 2010

Cheers !

DLF,Suzlon,Tatas…Stress Stake Sales at Stress Prices in Stress Times

Don’t get influenced and unduly excited by placements of part of their stakes by Promoters of DLF (at Rs 230) and Suzlon (at Rs 77) especially, and of TCS (at Rs 627)…..They have sold shares now as they desperately need funds and can’t raise it any other way……The Credit Crunch  and Contraction has simply overwhelmed the corporate sector

In fact you can even expect our government to sell some of it’s jewels…expect IPOs of PSUs in Q2 and Q3 this year…Even the Government desperately needs funds to fund the dangerously high fiscal deficit as it has reached saturation Borrowing Levels.

Otherwise,just ponder…..why did they not sell stakes in 2007 and 2008 when their Shares Prices were 5 to 10 times they are now !

So if a Foreign Bank operating in India was able to comfortably manage these placements,remember these were at stressed and possibly distressed prices…so there were many takers……not really prices at which the Promoters should sell !

But Desperate Times call for Desperate Measures