The leading PSU miner of Manganese ore in India has a surprisingly high operating profit margin (OPM) of 70%, owing to its exceptionally cheap mining operations.
Even on net interest margin, MOIL comes across as surprisingly strong at nearly 44%, having delivered profits of Rs. 465 crore on a revenue of Rs. 1060 crore in FY’2010.
The ongoing fiscal is all set to be a blockbuster for MOIL, as in the first half itself the company had produced over 70% of last year’s profit. In fact, the according to PK Mishra, Steel Secretary, MOIL is expecting an even better bottomline growth in H2, which means that potential investors in this IPO will be in for a pleasant surprise in the next quarterly and annual result.
Manganese being used primarily in the steel industry, MOIL falls under the oversight of India’s Steel Ministry.
Though MOIL is a company solely doing Manganese, this metal is the fourth largest used metal after iron, aluminium, & copper. But the real relevance of Manganese is that 90% of its production is going to make steel.
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With India all set to double its steel production by 2015, and thus become the second-largest producer in the world, Manganese demand is expected to be strong.
India also doesn’t have all the Manganese it needs. Despite being the 5th largest producer of Mn, India has been net importers for the last three years. That makes MOIL’s products to be in much demand in the foreseeable future.
With an over 50% market-share from its 10 mines in Maharashtra & Madhya Pradesh, MOIL is finely poised to be one of the key beneficiaries of India’s infrastructural boom.
The MOIL IPO price band of Rs. 340-375 is very attractive, given that it works out to only a price-earnings multiple (P/E) of 13.5, based on FY‘10 earnings. Retail investors shouldn’t miss this Issue as they will be offered a 5% discount.
In fact, Sumit Bose, India's Disinvestment Secretary has categorically stated that notwithstanding the unavoidable capital market fluctuations, no effort has been made to make the MOIL IPO attractive for retail investors.
Since MOIL is not raising any cash through this IPO, and with only Government of India, Government of Madhya Pradesh, and Government of Maharashtra selling their stake, there will not be any earnings dilution involved, that should be a big plus for investors.
KJ Singh, Chairman & Managing Director of MOIL has explained this, citing the Rs. 1700 crore cash reserves that makes further money raising unnecessary in the short-term.
The company's strong cash balance works out to Rs. 104 per share. MOIL is also a zero-debt company, and unlike bigger mining cousin Coal India, is not having a huge employee base that makes it less riskier on that front.
The IPO of this PSU Miniratna is of Rs. 1260 crore, and it has obtained an IPO rating of 5/5, showing 'Above Average Fundamentals'.
All these clearly shows that investors are all set to get above-average listing gains, with the only dampener being whether the ongoing scam involving certain public sector entities will make investors not very overenthusiastic. But this is unlikely, as with secondary market not providing any sort of investment opportunities in the short-term, investors will turn to quality IPOs in the primary market like MOIL.
On the issue of whether there will be a scramble to get out of MOIL on the listing day, some investors especially retail investors might do this, but due to the long-term value many institutional investors are likely to take a longer view. Also, though MOIL is a PSU, it need not fall into the same kind of unenthusiastic capital market stewardship post-IPO that makes many investors exit PSU IPOs with listing gains.