1QFY2012 Result Update | Mining

August 9, 2011

MOIL
Performance Highlights

NEUTRAL
CMP Target Price
% chg (yoy) (40.1) (49.2) (1,074)bp (40.3) 4QFY11 252 160 63.4 132 % chg (qoq) (16.5) (20.8) (310)bp (17.5)

`303 -

Particulars (` cr) Net sales EBITDA % margin Net profit

1QFY12 210 127 60.3 109

1QFY11 351 249 71.0 182

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Mining 5,091 0.5 591/300 539450 10 16,858 5,073 MOIL.BO MOIL@IN

Source: Company, Angel Research

MOILs 1QFY2012 net sales were lower than our estimates, while net profit was slightly above our estimate. Net sales and net profit decreased by 40.1% and 40.3% yoy, respectively, mainly due to a steep decline in manganese ore prices. We maintain our Neutral view on the stock. Falling prices hit MOILs profitability: During 1QFY2012, MOILs manganese ore sales volume declined by 18.9% yoy to 221kt as some of MOILs customers preferred to import manganese ore on account of lower prices prevailing in the international markets. Average blended realisation declined by 28.7% yoy to `8,300/tonne on account of oversupply in global markets. Thus, net revenue declined by 40.1% yoy to `210cr. During the quarter, other expenditure increased by 13.2% yoy to `35cr (16.7% of net sales in 1QFY2012 vs. 8.8% of net sales in 1QFY2011). EBITDA margin dipped massively by 1,074bp yoy, which led to EBITDA declining by 49.2% yoy to `127cr. Other income grew by 46.1% yoy to `43cr. Consequently, net profit declined by 40.3% yoy to `109cr. Outlook and valuation: Manganese ore prices have gradually slumped by over 40.0% since January 2011 on the back of oversupply in global markets. We expect manganese ore prices to remain under pressure in the near-tomedium term until inventory de-stocking takes place. MOIL is expanding its production capacity at existing mines to 1.5mn tonnes by CY2015 from 1.0mn tonnes in FY2011. However, given the recent slump in manganese ore prices, we expect margins to remain under pressure during FY2012 and FY2013. Key financials
Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 80.0 3.3 3.2 13.6

Abs. (%) Sensex MOIL

3m (9.0) (17.6)

1yr (7.8) -

3yr 11.1 -

FY2010 969 (25.0) 466 (32.5) 27.8 62.1 10.9 3.0 31.1 38.1 3.7 6.0

FY2011E 1,140 17.6 588 26.3 35.0 67.3 8.7 2.4 31.0 38.5 2.9 4.2

FY2012E 1,032 (9.4) 483 (17.9) 28.7 55.8 10.5 2.1 21.2 23.9 2.9 5.3

FY2013E 1,060 2.7 513 6.2 30.5 56.7 9.9 1.8 19.6 21.7 2.6 4.6

Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

MOIL | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance

Y/E March (` cr) Net sales Raw material % of net sales Staff cost % of net sales Royalty and cess % of net sales Other expenditure % of net sales Total expenditure % of net sales Operating profit OPM (%) Other operating income EBIDTA EBITDA margins (%) Interest Depreciation Other income Exceptional items Profit before tax % of net sales Tax % of PBT Profit after tax
Source: Company, Angel Research

1QFY12 210 (15) (6.9) 55 26.3 8 3.6 35 16.7 25 12.1 127 60.3 127 60.3 7 43 163 77.6 54 33.2 109

1QFY11 351 12 3.5 45 12.9 13 3.7 31 8.8 55 15.7 249 71.0 249 71.0 6 30 273 77.7 90 33.1 182

% yoy (40.1) 21.8 (41.4) 13.2 (53.6) (49.2)

FY2011 1,140 (32) (2.8) 202 17.7 44 3.8 159 13.9 373 32.7 767 67.3

FY2010 969 29 3.0 193 19.9 35 3.6 111 11.4 367 37.9 602 62.1 602 62.1

% yoy 17.6 4.6 25.4 43.5 1.5 27.4

(49.2) 11.9 46.1 (40.2) (0.1) (40.0) (40.3)

767 67.3 33 145 880 77.2 292 33.2 588

27.4 -

25 130 707 72.9 240 34.0 466

28.5 11.9 24.5 21.5 26.1

Exhibit 2: 1QFY2012 Actual vs. Angel estimates

(` cr) Net sales EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

Actual 210 127 60.3 109

Estimates 227 131 57.6 104

Variation (%) (7.5) (3.1) 270bp 4.8

August 9, 2011

MOIL | 1QFY2012 Result Update

Result highlights
Lower realisation leads to slump in net sales
During 1QFY2012, MOILs manganese ore sales volume declined by 18.9% yoy to 221kt as some of MOILs customers preferred to import manganese ore. International prices were lower compared to prices charged by MOIL during 1QFY2012. Average blended realisation declined by 28.7% yoy to `8,300/tonne on account of oversupply in global markets. As per management, current global demand of manganese ore was 35mn tonnes, while production was 47mn tonnes. Thus, net revenue declined by 40.1% yoy to `210cr. The top line was below our expectation of `227cr on account of lower-than-expected sales volumes.

Exhibit 3: Average realisation declines by 28.7% yoy

300,000 250,000 200,000
(tonnes)

14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Sales volumes Realisation (RHS)
(`/tonne)

150,000 100,000 50,000 0

Source: Company, Angel Research

EBITDA margin slips 1,074bp yoy due to lower prices

EBITDA margin dipped by 1,074bp yoy on account of a steep decline in average realisation, which also led to EBITDA declining by 49.2% yoy to `127cr. During the quarter, other expenditure increased by 13.2% yoy to `35cr (16.7% of net sales in 1QFY2012 vs. 8.8% of net sales in 1QFY2011). Other income grew by 46.1% yoy to `43cr. Consequently, net profit declined by 40.3% yoy to `109cr.

August 9, 2011

MOIL | 1QFY2012 Result Update

Investment rationale
Production capacity to expand, albeit gradually
MOIL has undertaken expansion plan at its existing mines to augment its production capacity to 1.5mn tonnes by CY2015 from 1.0mn tonnes in FY2011.

Steep decline in manganese ore price

Manganese ore prices have slumped over 40% since January 2011 on account of oversupply in global markets. Going forward, we expect manganese ore prices to remain under pressure until there is sharp de-stocking. Although we expect robust sales volume growth of 10.0% yoy in FY2012, lower realisations are expected to result in margin contraction during FY2012.

Adding value-added capacity through JVs

Currently, MOIL has beneficiation plants of 0.4mn tonnes at Dongri Buzurg mine and of 0.5mn tonnes at Balaghat mine to upgrade the quality of ore produced. MOIL intends to expand its value-added capacity and, thus, has entered into JVs with SAIL and Rashtriya Ispat Nigam Ltd. (RINL) to set up two ferro alloy plants in Chhattisgarh and Andhra Pradesh. The proposed installed capacity in case of the JV with SAIL is 1,06,000 tonnes and that in case of RINL is 57,500 tonnes. The plants are expected to be commissioned in 2013.

August 9, 2011

MOIL | 1QFY2012 Result Update

Outlook and valuation

Manganese ore prices have gradually slumped by over 40.0% since January 2011 on the back of oversupply in global markets. We expect manganese ore prices to remain under pressure in the near-to-medium term until inventory de-stocking takes place. MOIL is expanding its production capacity at existing mines to 1.5mn tonnes by CY2015 from 1.0mn tonnes in FY2011. However, given the recent slump in manganese ore prices, we expect margins to remain under pressure during FY2012 and FY2013. Hence, we recommend Neutral on the stock. On account of lower-than-expected sales volumes for 1QFY2012 and slump in manganese ore prices, we have lowered our sales and profitability estimates for FY2012 and FY2013.

Exhibit 4: Revision of estimates

(` cr) Net sales EBITDA EBITDA margin (%) PBT Net income Net margin (%)
Source: Bloomberg, Angel Research

Earlier estimates FY12E FY13E 1,177 1,208 679 57.7 826 552 46.9 708 58.6 878 587 48.5

Revised estimates FY12E FY13E 1,032 1,060 576 55.8 723 483 46.8 602 56.7 768 513 48.4

Upgrade/(downgrade) (%) FY12E FY13E (12.3) (12.2) (15.2) (190)bp (12.5) (12.5) (11)bp (15.0) (185)bp (12.6) (12.6) (17)bp

Exhibit 5: EPS Angel forecast vs. consensus

Year (`) FY2012E FY2013E
Source: Company, Angel Research

Angel forecast 28.7 30.5

Bloomberg consensus 35.2 38.2

Variation (%) (18.3) (20.1)

Exhibit 6: Recommendation summary

Companies CMP (`) 235 Target price (`) 335 Buy Reco. Mcap (` cr) 20,406 Upside (%) 43 P/E (x) FY12E 4.9 FY13E 5.8 P/BV (x) FY12E 1.6 FY13E 1.3 EV/EBITDA (x) FY12E 0.7 FY13E 2.4 RoE (%) FY12E 40.7 FY13E 25.2 RoCE (%) FY12E 42.9 FY13E 30.6

Sesa Goa
NMDC Coal India MOIL

237 381 303

- Neutral - Neutral - Neutral

93,983 240,400 5,091

13.3 17.7 10.5

11.7 17.0 9.9

3.8 5.5 2.1

3.1 4.4 1.8

8.4 11.5 5.3

6.8 10.0 4.6

32.2 35.0 21.2

29.2 28.8 19.6

40.3 33.9 23.9

36.6 29.0 21.7

Source: Company, Angel Research

August 9, 2011

MOIL | 1QFY2012 Result Update

Profit & loss statement

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other EBITDA % chg (% of Net Sales) Depreciation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Inc/(Expense) PBT after extraordinary items Tax (% of PBT) Extraordinary (Expense)/Inc. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 978 978 134.2 273 187 86 704 283.7 72.1 16 688 306.1 70.4 47 6.3 735 271.4 735 255 34.7 (18) 462 257.5 49.1 28.6 28.6 257.5 1,293 1,293 32.3 374 254 120 920 30.6 71.1 25 895 30.0 69.2 112 11.1 1,007 37.0 1,007 343 34.1 26 690 38.3 51.3 39.5 39.5 38.3 969 969 (25.0) 367 264 103 602 (34.5) 62.1 25 577 (35.6) 59.5 130 18.4 707 (29.8) 707 240 34.0 (1) 466 (29.7) 48.1 27.8 27.8 (29.7) 1,140 1,140 17.6 373 214 159 767 27.4 67.3 33 735 27.4 64.4 145 16.5 880 24.5 880 292 33.2 588 26.1 51.6 35.0 35.0 26.1 1,032 1,032 (9.4) 456 290 166 576 (24.9) 55.8 30 547 (25.6) 52.9 176 24.4 723 (17.9) 723 240 33.2 483 (17.9) 46.8 28.7 28.7 (17.9) 1,060 1,060 2.7 459 297 162 602 4.3 56.7 30 572 4.6 53.9 196 25.5 768 6.2 768 255 33.2 513 6.2 48.4 30.5 30.5 6.2

August 9, 2011

MOIL | 1QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Share Warrants Minority Interest Total Loans Deferred tax liabilities Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Total Assets 302 114 189 9 838 609 25 204 232 606 803 342 136 206 15 1,445 1,232 41 172 327 1,118 1,339 357 160 197 22 1,742 1,487 63 192 272 1,471 1,690 432 193 239 2,157 1,833 82 242 272 1,885 2,125 549 223 326 2,411 2,046 90 275 283 2,128 2,455 633 253 380 2,717 2,310 99 308 283 2,434 2,815 28 758 786 17 803 28 1,293 1,321 19 1,339 168 1,509 1,677 13 1,690 168 1,944 2,112 13 2,125 168 2,274 2,442 13 2,455 168 2,634 2,802 13 2,815 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

August 9, 2011

MOIL | 1QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash flow from operations (Inc.)/ Dec. in fixed assets (Inc.)/ Dec. in investments (Inc.)/ Dec. in loans and adv. Other income Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid Others Cash flow from financing Inc./(Dec.) in cash Opening cash bal. Closing cash bal. 45 (43) (113) (113) 287 321 609 104 56 (156) (156) 624 609 1,232 124 101 (110) (110) 255 1,232 1,487 (53) (153) (153) 346 1,487 1,833 (117) (153) (153) 213 1,833 2,046 (84) (153) (153) 264 2,046 2,310 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E 735 16 26 (88) 245 444 (88) 1,007 25 113 359 724 (49) 707 25 (103) 238 264 (23) 880 33 (69) 292 552 (53) 723 30 (30) 240 483 (117) 768 30 (42) 255 501 (84) -

(61) (127.5)

August 9, 2011

MOIL | 1QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio (%) Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory (days) Receivables (days) Payables (days) WC. cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA (0.8) (0.9) (0.9) (1.3) (0.9) (2.5) (0.9) (2.4) (0.8) (3.5) (0.8) (3.8) 4.0 31 59 30 41 4.0 56 17 20 36 2.8 46 32 23 39 2.9 50 40 22 42 2.1 50 40 20 54 1.8 50 40 20 52 108.7 74.5 83.6 65.5 38.1 31.1 38.5 31.0 23.9 21.2 21.7 19.6 70.4 65.3 5.8 267.6 267.6 69.2 65.9 8.6 391.2 391.2 59.5 66.0 6.3 245.8 245.8 64.4 66.8 4.6 198.7 198.7 52.9 66.8 2.9 104.3 104.3 53.9 66.8 2.3 83.6 83.6 28.6 28.6 28.4 5.8 46.8 39.5 39.5 42.6 7.9 78.6 27.8 27.8 29.2 5.6 99.8 35.0 35.0 36.9 7.0 125.7 28.7 28.7 30.5 7.0 145.3 30.5 30.5 32.3 7.0 166.8 10.6 10.7 6.5 1.9 4.6 6.4 5.6 7.7 7.1 3.9 2.6 3.0 4.2 2.9 10.9 10.4 3.0 1.8 3.7 6.0 2.1 8.7 8.2 2.4 2.3 2.9 4.2 1.5 10.5 9.9 2.1 2.3 2.9 5.3 1.2 9.9 9.4 1.8 2.3 2.6 4.6 1.0 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

August 9, 2011

MOIL | 1QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

MOIL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 9, 2011

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