Results beat estimates but no nearterm triggers; maintain Hold
* MOIL's expansion plans have been delayed for at least 5 to 6 months, assuming that the lockdown is over by August 31 and work resumes normally. However, in case normalcy is not restored by then, the expansion plan may be delayed further, eluding volume growth.
* Q1 beat our estimates. EBITDA/t of ₹3,330/t (yoy/qoq:-15%/+15x) was significantly ahead of our estimate of (-) 3,086/t, primarily driven by negative RM costs. Other operating expense was also low but will pick up on higher volumes going forward.
* Manganese Ore port stocks in China are still higher than the threshold of 4mt level, indicating weakness in near-term pricing. With resumption of mining operations in S. Africa, we believe that oversupply in the domestic market may continue for a while.
* We have increased our FY21E EBITDA by 27% due to strong Q1. We have tweaked our EBITDA estimates for FY22/23 marginally to reflect a small uptick in our TP from Rs160 to Rs163 at 4x FY22E EBITDA. Net cash of Rs 74/sh provides support to the stock, but the lack of near term trigger restricts upside. We maintain Hold.
Lockdown to affect capex and volume growth:
Commissioning high speed shafts at Balaghat mines and deepening of shaft at Gumgaon mines have been delayed substantially. Balaghat was for commissioning in Jan’21 and Gumgaon was due in June’21. We believe that the revised timelines for commissioning these expansion plans could be beyond FY22. While the company continues to pursue its long term target of achieving 2.5mt production in the next 5 years, we believe that there will be time and cost overruns in achieving the target. The company has not provided any specific guidance for FY21 production/sales volumes as its operations continue to hinge on the complete removal of the lockdown. Even current growth plans are on the basis of normalcy being restored by August 31.
Outlook and valuation:
While the Chinese steel production rate has been close to its all-time high at around 3mt per day, global Manganese ore prices are still correcting. In response, domestic prices have also corrected. The stock is trading at 3.3x/1.8x our FY22/23 Ebitda estimates and cash represents about 50% of its current market cap. However, in absence of volume growth, delayed expansion plans and weak pricing environment, the stock lacks nearterm triggers. We maintain Hold on the back of inexpensive valuations and cash rich balance sheet. Weaker-than-expected Manganese ore prices and weak Chinese steel production will be negative
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