Hold MOIL, target price Rs 160: Emkay Global

Emkay Global has given a hold rating to MOIL Ltd with a 12-month target price of Rs 160. The share price moved down by -3.75 per cent from its previous close of Rs 158.60. The stock’s last traded price is Rs 152.65.

Q4 sales volume of 0.33mt was 27 per cent below the brokerage estimates of 0.38mt. On a year on year basis, sales fell 12 per cent, reflecting Covid-19-led pain. MOIL raised prices by 45 per cent in May due to a shortage of Manganese ore as mines closed due to Covid-19 before reducing by 10 per cent in June.

The company has declared the final dividend of Rs 3/share in addition to an interim dividend of Rs3/share and also completed the buyback of 20 million shares (8 per cent of outstanding capital) in FY20, which supports the current valuation. The brokerage has cut estimates of FY21/22E volumes by 23 per cent/18 per cent but raised our ASP by 5 per cent/10 per cent on a strong price hike in May and normalization of demand in FY22.

Investment Rationale

The brokerage maintains a hold rating on MOIL as the company has cash of Rs 77/share. With minimal capex ahead, the brokerage expects a dividend of at least Rs 5.5/sh going forward. It does not rule out higher dividends during FY22, which should support valuations. At CMP, the stock is trading at 4 times the brokerage’s FY22 EV/EBITDA estimates.


Emkay Global has reduced multiples from 5 times to 4 times reflecting (1) lower than previously expected output (2) possibility of emergence of second wave of Covid-19, which could result in erosion of demand in the domestic market during H2FY21, an event we do not rule out. Further, the stock price has recovered and recouped the loss suffered in March, with a 55 per cent return in the last three months, leaving the upside capped in the near term.

Key risk is lower than expected ASP and volumes.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 248.66 crore, down -2.95 per cent from last quarter sales of Rs 256.22 crore and down -41.90 per cent from last year's same quarter sales of Rs 427.98 crore. The company reported net profit after tax of Rs 13.47 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 64.35 per cent stake in the company as of March 31, 2020, while FIIs held 2.92 per cent, DIIs 14.85 per cent and public and others 17.87 per cent.