moil initiating coverage 20151130

INITIATING COVERAGE 30 NOV 2015

MOIL BUY

All that cashManganese (Mn) is a critical steel input, a key part of the production process and a source of important mechanical properties. It is mostly used in the form of alloys Silicomanganese (~65%) and Ferromanganese (~35%).

With China consuming ~60% of the global output (in contained metal terms), the slowdown in its economy has hit Mn ore prices, like other ferrous inputs. Despite >50% of the capacity being below cash cost at current prices (US$ 2.09/dmtu), it is difficult to call a bottom for the Mn ore prices. India imports >50% of its domestic requirements, as domestic ores are of a lower grade.

Despite the slump, MOIL is attractively positioned because (1) It is the only domestic producer of high grade ores, (2) 1st quartile cash costs, (3) Long reserve life (30+ years), and (4) Cash on balance sheet (~Rs 170/sh). Initiate with a BUY with a TP of Rs 242 (5.0x FY18x EV/EBITDA)

Key takeaways

Near-term outlook weak: With weak prices, stagnant production/sales and large fixed costs (employees formed 60% of the op cost in FY15), the profitability is expected to decline sharply (EBITDA margins at 25% in FY16E vs. 46% in FY15). We expect the earnings to decline 42/12% in FY16/17 mainly on account of weak pricing.

Compared to mining PSUs with high cash content, we believe the possibilities of MOIL taking up large, long gestation projects are low. This is due to:

o Low capex intensity of core operations, mainly mining

o Domestic overcapacity in ferro-alloys. As a result, dividend yields (currently at ~4%),

may rise sharply. At current valuations (2.5-3.0x 1-year forward), the risk to reward is favourable.

Financial Summary Y/E Dec (Rs. in mn) FY14 FY15 FY16E FY17E FY18E Net Sales 10,213 8,233 6,572 6,974 8,168 EBITDA 5,546 4,159 1,684 1,628 2,424 PAT 5,096 4,280 2,475 2,180 2,628 Diluted EPS (Rs) 30.3 25.5 14.7 13.0 15.6 P/E (x) 6.6 7.8 13.5 15.3 12.7 EV / EBITDA (x) 0.8 1.0 2.1 2.6 1.7 RoE (%) 17.3 13.2 7.2 6.3 7.4 Source: Company, HDFC sec Inst Research

INDUSTRY MINING

CMP (as on 27 Nov 2015) Rs 199

Target Price Rs 242

Nifty 7,943

Sensex 26,128

KEY STOCK DATA

Bloomberg MOIL IN

No. of Shares (mn) 168

MCap (Rs bn) / ($ mn) 33/500

6m avg traded value (Rs mn) 15

STOCK PERFORMANCE (%)

52 Week high / low Rs 325/183

3M 6M 12M

Absolute (%) (4.6) (20.6) (37.5)

Relative (%) (4.2) (15.4) (29.4)

SHAREHOLDING PATTERN (%)

Promoters 80.00

FIs & Local MFs 3.99

FIIs 6.48

Public & Others 9.53

Source : BSE

Ankur Kulshrestha [email protected] +91-22-6171-7346

Anuj Shah [email protected] +91-22-6171-7321 HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

MOIL : INITIATING COVERAGE

Manganese: A critical element in the steel value chain Mn is a critical steel input

Manganese is a critical raw material input and additive for the steel industry owing to its de-oxidating, sulphur fixing, and alloying properties.

Its addition to steel enhances mechanical properties as strength, hardness, toughness, stiffness and wears resistance. Most Mn ore is processed into alloys before being used to make steel.

Silicomanganese (SiMn), which accounts for about 65-70% of all Mn alloys produced, is mainly used in long products.

Ferromanganese (FeMn), which accounts for ~30-35% of alloys, is mainly used in flat products.

Some Mn ore is used directly to make iron through BF route where it acts as a de-sulphuriser.

In 2013, the global consumption of Mn alloys was ~19mT, with SiMn accounting for ~70% of the volumes.

Mn is a consumable for steel industry as recovery from scrap is not possible. It is not recyclable.

Other industrial applications include alloying in non-ferrous metals, zinc smelting, dry cell batteries and chemicals.

Manganese Value Chain

Source: International Mn Institute (IMnI), Metal Bulletin, HDFC Sec Inst Research

Global Mn Alloy Production Break-up

Source: International Mn Institute (IMnI), Metal Bulletin, HDFC Sec Inst Research HC: High Carbon; Ref: Refined Fe Mn

4.4 4.4 4.2 4.2

1.5 1.6 1.6 1.7

8.711.9 11.7 13.2

14.6

17.9 17.519.1

0

5

10

15

20

25

2010 2011 2012 2013

HC FeMn Ref FeMn SiMn TotalmT

Mn is a critical steel input, a key element in the production process and imparts important mechanical properties Most Mn is used in the form of Silicomanganese (~65%) and Ferromanganese (~35%) alloys

Crude Steel~90%

Other~10%

Slag~15%

Ferro Alloys~85%

Manganese Ore

Feedstock for Ferroalloys93% - 94%

Speciality Processing6% - 7%

SiMn : ~65%FeMn : 35%

Page | 2


1 tonne of steel requires ~8.8kg of Mn input

Given the break-up of global steel production, 1 tonne of steel would need 8.8kg of Mn (contained metal)

Mn is consumed in high proportions in making of stainless steels and high-strength low-alloy steel (HSLA)

In Indias context, as stated by BIS standards: 10kg of Mn ore is required for 1 tonne of hot

metal (BF grade ore 25-30% Mn)

7kg of SiMn is consumed for a tonne of crude steel on an average, which, in turn, needs 1.8 tonne of Mn ore (30-35% Mn)

5kg of FeMn is consumed for a tonne of crude steel on an average, which, in turn, needs 2.4 tonnes of Mn ore (>40% Mn)

For a steel production target of 180 mT in 2020, Indian Bureau of Mines (IBM) estimated domestic Mn ore requirement at 9 mT (~5%)

Steel Types Relevant To Manganese

% of steel produced

Mn content

High Mn content steels High Mn non-magnetic steel 1.0% 11% Hadfield steel 1.0% 13% Stainless (200-series) 0.4% 12% Low Mn content steels Carbon steel 87.0% 0.5% HSLA steel 7.0% 1.5% Engineering/construction steel 3.0% 1.0% Stainless (excl. 200-series) 2.0% 1.0% Mn consumption/tonne of steel 0.9%

Source: International Mn Institute (IMnI), IBM, HDFC sec Inst Research Note: Totals may not add up due to rounding-off

Domestic Mn Ore Consumption Estimates (IBM)

Mn ore content

(kg/t) Mn ore required for Hot Metal (1) 10 Silico Manganese (SiMn) (2) 7 - Mn Ore/t of Si Mn (3) 1.8 Ferro Manganese (FeMn) (4) 5 - Mn Ore/t of Fe Mn (5) 2.4 Total Mn ore Content (kg/T) ( 1+2*3+4*5) 34.6

Source: International Mn Institute (IMnI), IBM, HDFC sec Inst Research

On an average, 8.8kgs of Mn input is required for 1 tonne of steel production Given the ore quality, every tonne of steel produced in India needs ~35kg of Mn ore input

Page | 3


India imports >50% of its Mn ore requirement

Low on high grade

Indias domestic ores are inferior in quality, with hardly 15-20% of domestic reserves compliant with FeMn requirements.

As a result, imports are dominated by higher grade ores (Mn >35%), which are typically blended with lower grade domestic ores before alloy production.

Imports have grown to ~60% of apparent consumption of Mn ore in FY15, from practically nil in FY05.

Break-up Of India Mn Ore By Grade

Source: IBM, Ministry of Trade, HDFC sec Inst Research

Imports Dominated By Higher Grade Ores


Imports Now At 60% Of Domestic Mn Consumption


9.16.1

35.126

9.9

13.8 7.8

13.9

33.315.6

15.2

14.2

FeMn Grade

Medium

BF Grade

Fe Mn/BF MixedMedium and BF FixedOthers

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

46%+ 44-46% 40-44% 35-40% 35%) India needs to import >50% of its Mn ore requirements, mostly of higher grades

Reserves: 142 mT Resources: 288 mT

Page | 4


~60% Of Global Mn Consumption of Contained Metal by China

~40% of Mn Ores Produced Globally By China

Chinese Ore Is Poor In Mn Content It Also Dominates Seaborne Trade

Source: IMnI, HDFC sec Inst Research

0

4,000

8,000

12,000

16,000

20,000

2008 2009 2010 2011 2012

China India Ukraine Russia South Korea Others

000 t

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2008 2009 2010 2011 2012 2013

China South Africa Australia GabonBrazil India Others

000 t

-6,000

-4,000

-2,000

0

2,000

4,000

2008 2009 2010 2011 2012

China India Japan RussiaUkraine South Africa Australia GabonBrazil Ghana

'000 T

China accounts for ~60% of global Mn ore consumption and ~40% of ore production However, due to inferior quality of its ores, it imports heavily and dominates the global seaborne trade in Mn ore

18%

41%

44%

45%

43%

36%

38%

28%

24%

10%

20%

30%

40%

50%

Chin

a

Sout

h A

fric

a

Aus

tral

ia

Gab

on

Bra

zil

Indi

a

Ukr

aine

Gha

na

Oth

ers

Page | 5


A commodity in the doldrums Mn ore, iron ore and steel prices (Rebased)

Source: Metal Bulletin, Bloomberg, HDFC sec Inst Research Note: All data as of November 27, 2015, close. Iron ore annual contract prices prior till JFY10, Chinese spot price thereafter

0

100

200

300

400

500

600

700

800

900

1000

Jan-

03A

pr-0

3Ju

l-03

Oct

-03

Jan-

04A

pr-0

4Ju

l-04

Oct

-04

Jan-

05A

pr-0

5Ju

l-05

Oct

-05

Jan-

06A

pr-0

6Ju

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-06

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pr-0

7Ju

l-07

Oct

-07

Jan-

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-08

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09A

pr-0

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-09

Jan-

10A

pr-1

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l-10

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Jan-

11A

pr-1

1Ju

l-11

Oct

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Jan-

12A

pr-1

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-12

Jan-

13A

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-15

Mn Ore (44% Mn), CIF Tianjin Port Iron ore, Brazil to Europe, 64.5% Fe, FOB Iron ore fines, 62% Fe, CIF China China HRC Spot prices

MOIL IPO

US$45/t

US$2.09/dmtuUS$286/t

Highly levered to Chinas steel consumption, Mn Ore pricing has crashed in lockstep with steel/iron ore

%

Page | 6


MOIL: World-class assets with long reserve life Operating world-class assets

MOIL operates 10 mines in Maharashtra and MP. It produces high-quality Mn ores (35%+ Mn content), which are the key drivers for business.

It is the only producer of high-grade Mn ore domestically.

The operations are 1st Quartile on Mn ore cash cost curve. However, compared with other large producers, which are export focused, MOIL sells domestically.

Reserve life of ~30 years on last disclosed reserves numbers. MOIL has continuously added resources in the past to maintain reserve life.

Average grade of reserves is ~33%, with grade at two largest mines, Balaghat and Dongri Buzurg, in excess of 40%.

Global indicative mn ore cash cost curve (FOB 2014)

Source: Companies, IBM, HDFC sec Inst Research Note: Production/cost from swing producers is representative and not accurate due to restricted data availability

Reserves And Resources

State Avg Mn

Grade (%) Reserves Resources

Proved Probable Total Measured Indicated M+I Inferred Total Balaghat 40% 6.92 2.07 8.99 12.71 7.14 19.84 1.49 21.33 Dongri Buzurg 42% 2.98 - 2.98 3.31 7.48 10.79 0.23 11.01 Other MP Mines 37% 1.51 2.26 3.76 5.58 1.62 7.21 3.71 10.92 Other Maha mines 35% 2.83 1.79 4.63 5.44 8.29 13.73 2.81 16.54

Total (JORC Compliant) 33% 15.62 6.12 21.75 36.78 24.53 61.30 8.24 69.54 FY14 (UNFC Compliant)

32.34

73.50

Latest (UNFC Compliant)

77.38

Source: Company, IBM, HDFC Sec Inst Research Note: JORC compliant reserves as at October 30, 2010

-

1.00

2.00

3.00

4.00

5.00

6.00

0.0 7.0 14.0 21.0 28.0 35.0 42.0

Swing producers

Current price (CIF China)

MOIL

Production (mT)

Cash

cos

t (U

S$/d

mtu

)

MOIL is the sole producer of high-grade Mn ore in the domestic market Low, 1st quartile cash costs, long reserve life and high grade of reserves make MOIL a leading Mn Ore producer globally Balaghat (MP) and Dongri Buzurg (Maharashtra) are two key mines that are a source of high-grade Mn

Page | 7


MOIL accounts for a majority of Indias production/high-grade reserves MOILs Share Of Consumption In India MOILs Share Of Production In India

Source: Company, IBM, HDFC sec Inst Research Source: Company, IBM, HDFC sec Inst Research Domestic Ore Producers

Producers District State Grade of ore

MOIL Limited Bhandara

Maharashtra HG+MG Nagpur

Tata Steel Limited Keonjhar

Odisha MG Sundergarh

The Odisha Manganese and Minerals (P) Limited

Sundergarh Odisha MG

M.L. Rungta Keonjhar Odisha MG RBSSD & FN DAS Vizianagaram Andhra Pradesh MG+LG The Sandur Manganese & Iron Ores Limited

Bellary Karnataka MG+LG

Gujarat Mineral Development Corporation

Panchmahal Gujarat MG

Others Goa, Jharkhand, Rajasthan MG+LG Source: IBM, HDFC sec Inst Research

0%

5%

10%

15%

20%

25%

30%

0

1,000

2,000

3,000

4,000

5,000

6,000

FY11 FY12 FY13 FY14 FY15

India MOIL % of domestic cons (RHS)

'000t

0%

10%

20%

30%

40%

50%

60%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY11 FY12 FY13 FY14 FY15

India MOIL % of Dom. Prodn (RHS)

'000t

MOIL accounts for a lions share in domestic Mn ore production and consumption, apart from being the only producer of high-grade Mn ores

Page | 8


MOIL: In the numbers Volumes Stagnant, We Expect Capex To Increase Realisations Fall In Line With Declining Global Prices

Payroll, Royalties (DMF) To Drive Cash Costs Higher Mn Ore Accounts For >90% Of Sales

Source: Company, HDFC sec Inst Research Note: US$/dmtu calculated at average content of 44% Mn

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

Production Sales Capex (Rs bn, RHS)

mT Rs bn

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

US$/dmtu

1.7 1.40 1.67 1.97 1.81 1.63 1.73 1.74 1.78 1.90

4.7

2.41

3.80

1.88 1.51 1.65 1.53

0.55 0.49 0.75

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

Implied cash cost/t Blended EBITDA/T

US$/dmtu

0%

20%

40%

60%

80%

100%

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Manganese ore E.M.D.

Ferro manganese Ferro manganese slag

Power to MPEDCL(KwH)

We do not expect steep volume upsides, capex largely treadmill in nature Mn prices are expected to remain under pressure given global glut Profitability will be further impacted by higher payroll costs and additional royalties under DMF

Page | 9


Lower Return Ratios (vs. Historical Averages) Low Implied Multiples Impart Safety Against Price Drop

P/E P/B

Source: Company, HDFC sec Inst Research

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

FY13

FY14

FY15

FY16

E

FY17

E

FY18

E

RoIC (%) RoE (%)

%

-

2.0

4.0

6.0

8.0

10.0

12.0

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

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Oct

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Oct

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4Ju

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Jan-

15A

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EV/EBITDA (x) Average

SD+1 SD-1(x)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan-

11A

pr-1

1Ju

l-11

Oct

-11

Jan-

12A

pr-1

2Ju

l-12

Oct

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pr-1

3Ju

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Jan-

14A

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4Ju

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Jan-

15A

pr-1

5Ju

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-15

P/E (x) AverageSD+1 SD-1

(x)

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

11A

pr-1

1Ju

l-11

Oct

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P/B (x) AverageSD+1 SD-1

(x)

Lower profitability to drag down the return ratios and valuations to historical lows

Page | 10


MOIL Ltd: Can it escape Make in India?

MOIL GMDC NALCO NMDC

Market Cap (Rs bn) 33.4 27.5 102.2 367.8

Cash (as % of market cap)

Commodity exposure Manganese Lignite, Bauxite, Manganese,

Flourspar Mandate for all minerals in Gujarat

Aluminum, Alumina Iron Ore, Diamonds, Potash

Ministry Mines Govt of Gujarat Mines Steel

Forward integration

Small FeMn capacity operational (10,000 TPA)

Excess domestic capacity in Mn alloys limits downstream capex likelihood Focus to remain on increasing Mn ore production

Power plant of 2*125 MW is currently operational

Present across Al value chain. Also, currently on the drawing board: Alumina refinery (1 mTPA) Alumina refinery in Gujarat (1

mTPA) Overseas smelters

Pellet plant operational Putting up a steel plant for

Rs 155bn 2 steel plants on the anvil

(Karnataka and Jharkhand)

Other diversification plans/Capital misallocation options

May acquire Mn ore mines overseas

Wind/solar capacity

Several MoUs for cement, alumina, Mn Alloys in place

Wind/solar Nuclear Power plant with NPCIL 114 MW of wind capacity

Has been scouting for Potash assets globally

Stake in Legacy Iron ore, Australia

88.0%

12.0% Cash EV

37.8%

62.2%

Cash EV

54.6%

45.4%

Cash EV

52.9% 47.1%

Cash EV


Page | 11


Peer valuation

Company MCap

(US$bn) EV

(US$bn) EV/EBITDA (x) P/E (x) FY16E FY17E FY16E FY17E

Mn Pureplay

South 32* 4.7 6.1 3.9 3.3 15.6 10.3 Eramet* 1.1 2.1 12.9 4.4 N/M N/M African Rainbow Minerals* 0.9 1.2 6.9 4.9 20.3 10.1 Domestic miners

Coal India (BUY) 32.6 24.5 8.3 8.4 13.2 13.1 NMDC (SELL) 5.6 2.6 5.9 6.3 11.0 11.1 GMDC* 0.4 0.2 6.6 5.3 9.1 7.9

MOIL* 0.5 0.1 2.1 2.7 13.5 15.3 Source: Companies, Bloomberg, HDFC Sec Inst Research, * Not rated Market data as of November 27, 2015 close, South32 and African Rainbow Minerals are June YE, Eramet is December YE Key Assumptions Key Assumptions US$/dmtu unless otherwise specified

FY13 FY14 FY15 FY16E FY17E FY18E

INR:US$ 54.36 60.36 61.16 65.00 66.00 66.00 Mn Ore volumes (mn T) 1.19 1.13 0.91 0.98 1.03 1.03 Benchmark Mn ore prices 5.10 5.29 4.22 2.75 2.75 3.25 MOIL Realisations 3.12 3.14 3.06 2.09 2.09 2.47 Blended EBITDA 1.51 1.65 1.53 0.55 0.49 0.75 Implied cash cost (C1) 1.81 1.63 1.73 1.74 1.78 1.90 Source: Company, HDFC sec Inst Research Note: All prices/costs normalized to benchmark Mn ore content (44%)

Key Sensitivities INR:US$ TP (Rs) 62 64 66 68 70

Benc

hmar

k M

n or

e pr

ices

(U

S$/d

mtu

) 2.75 199 204 210 215 220 3.00 214 220 226 231 237 3.25 229 235 242 248 254 3.50 244 251 258 264 271 3.75 259 266 274 281 288

Valuations remain inexpensive compared with global peers and domestic miners. Despite the macro headwinds, we believe the risk reward is favourable, given the large cash on B/S We model a modest recovery in the global Mn ore prices (currently at US$2.09/dmtu)

Page | 12


Sales Break-up Production Break-up

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Realisations Falling Realisations and EBITDA

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

2.83

3.57

2.58

2.57 2.

91 3.28

2.15 2.38 2.55

2.00 2.

42

2.08

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Non-fines Fines TotalmT

3.15 3.37

2.52

2.32

3.11

3.40

2.73

2.38 3

.11

3.17

2.76

2.27

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Non-fines Fines TotalmTGlobal prices and demand have put pressure on both realisations and volumes for MOIL Realisations/profitability is expected to decline as MOIL cuts prices sharply in November

-

2,000

4,000

6,000

8,000

10,000

12,000

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

2HFY

16

Non-fines FinesRs/t

-

2,000

4,000

6,000

8,000

10,000

12,000

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Blended realisation/t EBITDA/tRs/t

Page | 13


Income Statement Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Net sales 10,213 8,233 6,572 6,974 8,168 Growth % 5.6 (19.4) (20.2) 6.1 17.1 Manufacturing expenses 2,205 1,369 1,598 1,739 1,926 Employee Expenses 2,561 2,628 2,975 3,273 3,463 SG&A Expenses 316 369 380 399 419 Other operating expenses 119 76 66 73 80 Operating profits 5,012 3,790 1,553 1,491 2,280 Operating Profit Margin (%) 49.1 46.0 23.6 21.4 27.9 Other operating income 535 368 130 137 144 EBITDA 5,546 4,159 1,684 1,628 2,424 EBITDA % 54.3 50.5 25.6 23.3 29.7 EBITDA Growth % 25.9 (25.0) (59.5) (3.3) 48.9 Other Income 2,499 2,798 2,573 2,280 2,260 Depreciation 352 451 507 604 702 EBIT 7,693 6,506 3,750 3,303 3,982 Interest 0 0 0 0 0 PBT 7,693 6,506 3,750 3,303 3,982 Tax 2,598 2,226 1,275 1,123 1,354 PAT 5,096 4,280 2,475 2,180 2,628 APAT 5,096 4,280 2,475 2,180 2,628 APAT Growth (%) 18.0 (16.0) (42.2) (11.9) 20.5 EPS 30.33 25.48 14.73 12.98 15.64 EPS Growth (%) 18.0 (16.0) (42.2) (11.9) 20.5


Balance Sheet Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E

SOURCES OF FUNDS

Share Capital 1,680 1,680 1,680 1,680 1,680

Reserves 29,593 32,137 32,929 33,429 34,376

Total Shareholders Funds 31,273 33,817 34,609 35,109 36,056

Deferred Taxes (165) 110 110 110 110

Long-term Provisions & Others 1,174 103 103 103 103

TOTAL SOURCES OF FUNDS 32,282 34,030 34,822 35,322 36,269

APPLICATION OF FUNDS

Net Block + CWIP 2,323 2,939 3,732 4,428 5,026

CWIP 690 529 526 526 526

Investments, LT Loans & Advs 673 840 840 840 840

Inventories 491 1,442 869 1,419 1,519

Debtors 1,198 1,150 1,150 1,150 1,150

Cash & Equivalents 29,020 29,362 29,936 29,190 29,439

ST Loans & Advances, Others 158 217 217 217 217

Total Current Assets 30,867 32,171 32,172 31,976 32,325

Creditors 70 35 35 35 35 Other Current Liabilities & Provns

2,201 2,415 2,415 2,415 2,415

Total Current Liabilities 2,270 2,450 2,450 2,450 2,450

Net Current Assets 28,596 29,722 29,723 29,526 29,875

TOTAL APPLICATION OF FUNDS 32,282 34,030 34,820 35,320 36,267 Source: Company, HDFC sec Inst Research

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Cash Flow Year ending March (Rs mn) FY14 FY15 FY16E FY17E FY18E Reported PAT 5,096 4,280 2,475 2,180 2,628 Non-operating & EO items 1,651 1,964 1,698 1,505 1,492 PAT from Operations 3,444 2,316 777 675 1,136 Interest expenses 0 0 0 0 0 Depreciation 352 451 507 604 702 Working Capital Change 2,099 (1,284) 573 (550) (100) OPERATING CASH FLOW ( a ) 5,895 1,483 1,857 730 1,738 Capex (720) (1,344) (1,300) (1,300) (1,300) Free cash flow (FCF) 5,175 139 557 (570) 438 Investments 0 0 0 0 0 INVESTING CASH FLOW ( b ) (720) (1,344) (1,300) (1,300) (1,300) Share capital Issuance 0 0 0 0 0 Debt Issuance (259) (320) 0 0 0 Interest expenses 0 0 0 0 0 Dividend (1,479) (1,714) (1,681) (1,681) (1,681) FINANCING CASH FLOW ( c ) (1,738) (2,034) (1,681) (1,681) (1,681) NET CASH FLOW (a+b+c) 3,437 (1,895) (1,124) (2,251) (1,242) Non-operating and EO items 1,651 1,964 1,698 1,505 1,492 Closing Cash & Equivalents 29,031 29,089 29,936 29,190 29,439


Key Ratios FY14 FY15 FY16E FY17E FY18E PROFITABILITY (%)

EBITDA Margin 54.3 50.5 25.6 23.3 29.7 APAT Margin 49.9 52.0 37.7 31.3 32.2 RoE 17.3 13.2 7.2 6.3 7.4 RoIC 115.1 77.6 17.0 12.8 18.1 RoCE 17.3 14.0 7.2 6.3 7.4 EFFICIENCY Tax Rate (%) 33.9 29.8 34.0 34.0 34.0 Asset Turnover (x) 1.6 1.3 0.9 0.9 0.9 Inventory (days) 18 43 64 60 66 Debtors (days) 72 49 60 56 48 Payables (days) 6 2 2 2 2 Cash Conversion Cycle (days) 84 89 122 114 112 Debt/EBITDA (x) N/M N/M N/M N/M N/M Net D/E N/M N/M N/M N/M N/M Interest Coverage N/M N/M N/M N/M N/M PER SHARE DATA EPS (Rs/sh) 30.3 25.5 14.7 13.0 15.6 CEPS (Rs/sh) 32.4 28.2 17.7 16.6 19.8 DPS (Rs/sh) 7.5 8.5 8.5 8.5 8.5 BV (Rs/sh) 186.2 201.3 206.0 209.0 214.6 VALUATION P/E 6.6 7.8 13.5 15.3 12.7 P/BV 1.1 1.0 1.0 1.0 0.9 EV/EBITDA 0.8 1.0 2.1 2.6 1.7 OCF/EV (%) 135.1 36.9 53.9 17.4 44.1 FCF/EV (%) 118.6 3.5 16.2 (13.6) 11.1 FCFE/Market Cap (%) 20.4 6.3 6.8 2.8 5.8 Dividend Yield (%) 3.8 4.3 4.3 4.3 4.3 Source: Company, HDFC sec Inst Research

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Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

170

190

210

230

250

270

290

310

330

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep-

15

Oct

-15

Nov

-15

MOIL TPDate CMP Reco Target

30-Nov-15 199 BUY 242

RECOMMENDATION HISTORY

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Disclosure: We, Ankur Kulshrestha, PGDBM, & Anuj Shah, MSc, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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