MOIL IPO Price of Rs 340-375 makes Valuation Very Attractive;Mining PSU Should See Huge Oversubscription

MOIL IPO Price Band has been set at Rs 340-375 which would allow the Central government and the 2 state governments of Maharashtra and Madhya Pradesh to raise Rs 1238 crore.Note the MOIL stock had seemed very attractive valuation even at a market cap of Rs 7500 crore,however at around Rs 6200 crore Manganese Ore India looks even better than the extremely successful CIL.Coal India had been priced at a sharp discount to international Coal Companies.MOIL is looking even better on valuation metrics with a P/E of 6-7x with the same fundamental advantages seen in CIL

Here is a reiteration of the valuation and advantages of Manganese Ore India.

Valuation

MOIL has a Net Worth of Rs 1860 crores and a NAV of around Rs 110/share.The Company will probably earn around Rs 700 crore this fiscal year after doing Rs 465 crores last year (which was a bad year for the industry).Operating Cash Flow has been generally higher than the Net Profit leading to improved cash position over the last 4 years.The Capital Requirements of the Business is quite low leading to high Return Metrics.If the Government sells the 20% stake at Rs 1500 crore that would give the company a market cap of Rs 7500 crore.Taking out the Rs 1700 crore in cash would make the company be valued at 3.2x BV and 8-9x P/E.This is a sharp discount to Global Mining Companies.

Advantages of Manganese Ore India

1) Largest Indian Manganese Producer – MOIL is the largest Mn Producer in India with around 1.1 million tons in 2010.The Company is planning to increase production by around 10% each year to reach 1.5 million tons by 2014.The 69 million tons of reserves that the company has is of high grade ores.The Company accounts for around 50% of the Mn production in India

2) Excellent Financial – The Company has reported 45-49% Net Margin in the last 3 years,the period in which the Steel Industry witnessed a sharp downturn.The Company has no debt and more than $400 million in cash.The Company generates high EBITDA and high cash flows as well

3) Forward Integration – The Company has set up JV with Indian Steel PSUs to set up value added manganese alloys production for the Steel Industry.The Company also has manganese benefaction manufacturing at 2 of its mines.The Company is also looking to expand Manganese Exploration in the state of  Maharashtra.

4) India Demand – Indian Steel Industry is growing rapidly due to the fast growing economy with Steel Production expected to double to 125 million tons by 2015.It provides a strong demand for Mn Ore whose growth in India is expected to be around 9% per annual.Note Indian Mn Production is somewhat insulated from world demand-supply imbalances due to strong secular growth.There are restrictions on exports of Mn ore as India is a importer of this ore.

The main difference between MOIL and Coal India is the number of shares being issued.Note MOIL is going to raise only $300 million compared to the $3.5 billion raised Coal India.CIL had gotten 15 times over subscription which implies that MOIL can 150 times over subscription based on CIL subscription numbers.While the MOIL IPO Price is very attractive,the massive potential over-subscription would hardly lead to much allotment.However the government had done a good job in pricing the PSU share sales at a decently low price leaving something on the table for investors.Coal India IPO was done at a substantial discount to international peers making it a big success.Shipping Corporation of India is also coming out with a FPO where the pricing will be the key.