MOIL: Cash in on manganese

Investors can bet on this cash-rich public-sector company, which has the capability to deliver good returns in the long term.     MOIL, India's largest and the world's fifth largest producer of manganese ore, has shown the ability to deliver decent numbers even though the global manganese industry is going through a rough patch. MOIL's sales figures for the first quarter of 2012-13 have gone up by 15% on a year-on-year basis, and by 20% on a quarter-over-quarter basis. Though a 42% jump in volume helped MOIL boost its first quarter sales, the fall in net realisation due to the oversupply of global manganese ore has forced it to take a small cut of 9% in its first quarter net profit on a yearon-year basis.      MOIL's decision to align the domestic manganese ore prices with the international prices may result in a short-term pressure on its margins. Yet, it was touted as a good move and has helped MOIL replace the manganese ore imports and increase its sales volume. Though the global manganese ore price trends may remain under pressure due to oversupply concerns, the declining inventory levels in Chinese ports, estimated to be around 2.55 million tonnes in June 2012, down from 4 million tonnes in April 2011, should provide it some support in the short term. The recent fall in the Indian rupee has also nullified the fall in the international manganese ore prices. This has helped MOIL increase domestic prices by 9% in April and 15% in July. The stable manganese ore prices compared with the sharp fall seen last year and increased production should help MOIL declare good numbers in the coming quarters. The management has reiterated that the volume target for 2012-13 would be achieved      With the stock market price coming down continuously since its IPO, valuations have become reasonable for this niche mining company. MOIL can boast large, high-grade manganese ore reserves, and has the lowest cost of production of manganese ore in the world.      More importantly, the company had cash and cash equivalent of around 2,100 crore at the end of the first quarter compared with its market cap of around 3,900 crore. With no immediate plans for large capital expenditure, it is reasonable to expect an increased dividend payout, especially in the current situation where the government is trying to generate additional revenue to bring down the fiscal deficit. It is the lower payout that is keeping the valuation under wraps and any hint about an increased dividend payout will improve the valuation. Since these high and unutilised cash reserves are reducing the return ratios, there is a possibility that the company might go for a share buyback.  Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in rating indicates that the analysts are becoming more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks which have been covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 100 table (page 23).