MOIL IPO opens: Why are experts, brokerages bullish?

The initial public offering (IPO) of MOIL (formerly Manganese Ore India) has opened for subscription today. MOIL aims to raise Rs 1260 crore via offering of 336 lakh equity shares at higher end of price band of Rs 340-375.

It is an offer for sale for cash by The President of India, acting through the Ministry of Steel, Government of India, Government of Maharashtra and Madhya Pradesh. The issue will close for qualified institutional bidders on November 30 and for other investors on December 1.

MOIL IPO opens: Why are experts, brokerages bullish?

Experts as well as brokerage houses are bullish on MOIL and expect fabulous listing as well.

Investment Advisor, SP Tulsian gives a thumps-up to the issue and congratulates the government on adopting such attractive pricing. "Investors are advised to go for the issue at the upper end of Rs 375," he says.

Manish Bhatt of Prabhudas Lilladher also advises the same.

"The issue is likely to get an overwhelming response, and is expected to get subscription of over 20 times under retail category, about 180 times under HNI and over 50 times in QIB categories. Going by the current grey market premium, listing is likely to be above Rs 600, resulting in a gain of about Rs 6,000 for a retail application. Retail investors are advised to apply at Rs 375 per share and go for as large as they can and they need to pay Rs 375 on application, though allotment shall be made after 5% discount," Tulsian explains.

Bhavin Shah, CEO of Equirus Securities elaborates, "MOIL is obviously the India’s largest manganese ore producer and the quality of their mines are also very high and there is also growth in the business. They continue to find new reserves and we think that basically the stock should trade at some sort of premium to the fair value of its reserves and based on that we put a value around Rs 470. So even at the high end of that IPO pricing range, there is decent upside if somebody wants to hold the stock for a year or so and that is why we recommend subscribing to the IPO."

Brokerage houses like Emkay Global Financial Services, Nirmal Bang, IIFL, Mehta Equities and Fairwealth Securities recommends subscribing the issue.

Emkay Global

MOIL is the largest manganese ore producer in India, contributing 50% of the total domestic production. Globally it ranks fifth among all the manganese producers. The company is among the lowest cost manganese ore producers with an EBITDA margin of 70% during H1FY11. It has 22 mt of good quality manganese ore reserves. MOIL is a debt free company with net cash of Rs 105 per share during H1FY11. The company has a planned capex of Rs 7680 million to ramp up its capacity to 1.5 mtpa by FY16. At the upper band of Rs 375, the stock looks attractively valued with potential upside of 40% on 6x FY12E EV/ EBITDA basis - recommend subscribe.

Nirmal Bang

MOIL IPO opens: Why are experts, brokerages bullish?

The shares are offered at a P/E multiple of 8.6x and 9.5x FY11E (H1 FY11E annualized) at the lower and upper price band respectively on post issue capital, which looks attractive as compared to some of its peers.

Due to decline in realisations across the industry in FY10, MOIL’s financial performance had deteriorated as compared to that in FY09.

However, on improvement of realizations, the company has recuperated and reported healthy performance in 1H FY11, which is a positive sign for the company. The company looks all set to grow in the next few years and is well placed to encash on the available opportunities. We recommend investors to subscribe to this IPO.

IIFL

MOIL has over four decades of experience in manganese ore mining operations. It enjoys a near monopoly with a dominant 50% share in the domestic manganese production and is also one of the lowest cost producers of manganese ore in the world. MOIL was conferred with ‘Mini Ratna’ status by Government of India in FY08.

A debt-free company, it has a healthy balance sheet with strong cash flows. As on H1 FY11, its cash balance stood at Rs17.6bn, which translates into Rs105 per share. It has witnessed revenue and PAT CAGR of 31% and 42% respectively, over the last four years.

Presently, it is enjoying OPM of 70.3% and PAT margin of 52.1%. We recommend investors to subscribe the issue.

Mehta Equities

MOIL IPO provides investors an opportunity to invest in the largest producer of manganese ore by volume in India. "On valuations per se at the higher side of the price band i.e. Rs 375, the issue is available 13.5 x its FY’10 EPS and 12.2x on lower band price. On P/BV valuation the stock is available at 3.8 and 3.4 times which is available on discount when compared to its domestic & global peers which are trading at 4-5 times.

We expect the revenues to grow substantially in the future with improved margins in the coming years. Hence, we advice investors to subscribe to the IPO considering factors like largest and lowest cost producer of manganese ore, strong cash flows and a debt free company.

Fairwealth Securities

It expects the demand of manganese ore to cross 4mt by the first half of FY13. "Long term investors can consider the IPO with an expected return of 50-60% with a time horizon of 12-24 months whereas short term investors can expect listing gains of 20-30%.
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SOURCE: MONEYCONTROL