STOCK TIPS 4 ALL - BUY MOIL @ TARGET OF RS.448 : A C CHOKSI

A C Choksi is bullish on MOIL and has recommended buy rating on the stock with a target of Rs 448 in its April 26, 2011 research report.

“MOIL, demand for manganese ore is derived from steel, as the steel consumption is expected to increase in future years, the manganese ore consumption is also likely to follow. The company being the largest producer of manganese ore by volume in India having access to 21.7 million tonnes of proved and probable reserves and a total of 61.3 million tonnes of resources (as per JORC code refer )is likely to gain the most under such a scenario. In the high interest cost environment, MOIL is immune to increase in interest rates at least directly, because it doesn't have the burden of debt in its balance sheet. That's one reason for its high PAT Margins (48.03% for FY 10).”

“Production capacities in manganese alloys have been on the rise during the past ten years. The capacity increases by about 19-20% each year, whereas the domestic demand increases by 17-18%. In light of the brighter future potential for steel sector, global demand for ferro alloys is expected to be robust; the company is planning to encash this opportunity by entering into joint ventures with SAIL & RINL for setting up ferro manganese and silico manganese plant. Collectively, this is expected to expand the ferro manganese capacity by 51,000 Tonnes per annum and silico manganese capacity by 112,500 Tonnes per annum.”

“We expect MOIL's Sales, EBITDA & PAT to grow at a 2 year CAGR of 19%, 24% & 24% respectively till FY 12 E. We expect MOIL's Sales, EBITDA & PAT to grow at a 2 year CAGR of 19%, 24% & 24% respectively till FY 12 E. We have employed the EV/EBITDA method for valuing MOIL. MOIL is currently trading at 5.1 times(x) and 4.4 times(x) EV upon FY 11 E & FY 12 E forward EBITDA. We assign a forward multiple of 5.5 times (x) EV/EBITDA to its FY 12 E EBITDA of Rs 9,238 Mn .(refer exhibit 68). We feel MOIL is undervalued at the current levels and offers a scope for a value buy. It also comes with a dividend yield of 1.4% FY 10 and on a conservative basis we expect it to achieve a dividend yield of 2.2% for FY 12 E. We initiate coverage with a BUY Rating on MOIL with a target price of Rs 448, valuing it at 5.50x FY2012E EV/EBITDA, giving it an upside potential of 16% from current levels,” says A C Choksi research report.