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Weak results; maintain Hold

* Q3 sales/revenue/PAT missed our estimates by 19%/36%/45% as volumes and blended ASP came in below expectations. We believe that despite a pick-up in steel production, Manganese ore pricing remains under pressure due to high inventory in China.

* Even though capex has been delayed, we believe that revival of the secondary steel producers is likely to help recover demand for MOIL. Further, revival in global steel production should also support Manganese ore demand.

* The expansion projects have slowed down due to a delay in obtaining visa for the Chinese experts (required to continue with the shaft sinking process). However, with nearly 50% of the balance sheet in cash, we expect a higher dividend to support the stock price.

* Our FY22 estimate of production and sales at 1.3mt is below management guidance. We cut our FY22/23 EBITDA estimates by 7%/4%. Maintain Hold with a revised TP of Rs140 (Rs145 earlier), valuing the stock at 4x our FY22E EV/EBITDA.

* Big ticket expansion depends on completion of key mines expansion: Shaft sinking at Balaghat and Gumgaon mines is critical for the next big ticket growth for MOIL. They are also the next milestones for the stock’s performance. In absence of any development on the same, we expect the stock to remain sideways.

* Dividend for FY22 could exceed FY21 despite lower profits: We expect FY21 PAT to be around 28% lower on a yoy basis; however, we expect the dividend to be maintained at near FY20 levels. We build in DPS of Rs5.50/sh for FY21-23 compared to Rs6.26/sh declared in FY20. We do not rule out higher dividend in FY21 from FY20.

* Outlook and valuation: Demand for Manganese ore is directly linked to steel production. We expect revival in domestic steel production in CY21, driven by pent-up demand and revival of the capex cycle in the economy. This should ensure higher consumption of ferro alloys, which are the key ingredients for making steel. The stock is trading at 4.7x our FY22E EV/EBITDA. The upside is capped due to risk to volume growth, while the downside is limited due to expectation of a higher dividend. We have marginally reduced our FY22/23E revenue by 2%/1%, leading to EBITDA reduction of 7%/4% and PAT cut of 7%/5%. Maintain Hold with a revised TP of Rs143 (from Rs 145). Key risks to our estimate are a slump in Manganese Ore prices and further delay in expansion.

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