Manganese Ore India Limited – MOIL – IPO – 29th November

Analysis of MOIL IPO:

Positives:

  • Steel industry in India is a solid 9% a year growth industry. Manganese ore is an essential raw material.
  • Good mining reserves, 50% of market share of Manganese ore produce in India
  • 5th largest producer in the world; Lowest cost producer in the world. Has a good chance to have leading margins among Manganese ore producers for many years
  • At Upper end of pricing, valuation will be 9.5 times estimated FY 11 revenues – fair valuation
  • Debt free with Cash on books of Rs 105 per share – means that at Rs 375 per share pricing, we are actually paying only Rs 270 for the running business.
  • IPO Grade 5/5 from credit rating agency CARE
  • Recent success of Coal India IPO – some similarities can be drawn with MOIL – dominating market share; PSU; long experience in sector; ownership of low cost mines
  • Also, similar to CIL, Indian and FIIs will be queuing up to invest in the Basic material assets of India. I expect high over-subscription and demand on listing
  • 5% Retail discount is a plus

Negatives:

  • Input for Steel industry – so demand is a function of Steel demand, which has a vicious cyclical behavior
  • Future performance can be affected by permits & permission grant by Environment Ministry
  • Retail investment cap is Rs 2L – this has attracted larger subscription. Nov 29 data is – 2.8 times subscription for Retail, – 2.4 times for HNI and – 2.14 times for Institutions.
  • As a PSU – one cannot expect rapid decision-making, quick investments and capacity expansion, or growth. Hopefully there may not be interference from government or subsidy issues – this market messing up is limited to Petroleum sector

What to do now?

  • We need to watch the Nov 30 numbers, as institutional demand of over 7-10 times will be a big positive.
  • We also need to watch Retail subscriptions. My feel is that Retail may get over-subscribed 5-7 times. This will mean a 2L investment by Retail will yield about Rs 30k worth of shares.
  • However watch for Retail crossing 7 times. This is negative/ result in lower allotment
  • Barring any hiccups, I expect a 20% appreciation on listing, to about Rs. 450 range.
  • To get firm allotment, subscribe for 527 shares (31×17) at cut off – invest Rs 1,97,625.

Also see post closure report on MOIL IPO – click Link

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