MOIL Limited has launched its offer for divestment of selling 20% of its existing equity by way of an offer for sale on Friday the 26^th of November. The selling shareholders are the Government of India which is selling 50% of the shares on offer and the state governments of Maharashtra and Madhya Pradesh who are selling 25% each of the shares on offer. The price band is Rs 340-375 and the issue closes for QIB bidders on Tuesday the 30^th of November and all other bidders on Wednesday the 1^st of December.

Business
MOIL is in the business of mining manganese ore. It is India’s largest manganese ore producer and has been increasing its production over the years. The production has increased from 8,64,890 tons in fiscal 2006, it has increased to 10,93,363 tons in fiscal 2010. MOIL has access to 21.7 million tons of proved and probable reserves and a total of 69.5 million tons of measured, indicated and inferred mineral resources of manganese ore. In addition 55% of the proved and probable manganese ore reserves as of October 1^st 2010, have average manganese content of 40% or higher. A further 27.5% of the reserves have an average manganese content ranging from 36% to 39.9%. It may be of interest to note that none of the mines produce low grade manganese which has manganese content below 30%. The largest reserves of MOIL are at Balaghat in Madhya Pradesh and at Dongri Buzurg in Maharashtra.

MOIL currently operates seven underground mines and three opencast mines. A fresh area of 814.71 hectares of land has been reserved in the state of Maharashtra under a notification from the Ministry of Mines in October 2009. The company has applied for prospecting licenses with respect to this area.

Manganese ore is primarily used to make ferro-alloys for steel production. India was the fifth largest producer of crude steel in 2009 and is likely to become the second largest producer of crude steel in the world by 2015-16. It is anticipated that the steel production capacity in India will be nearly 124 million tons in 2011-2012. This increase in capacity will automatically increase the demand for manganese ore and currently MOIL produces 50% of the countries production.

MOIL in addition to medium grade manganese ore, also makes manganese dioxide and chemical grade manganese ore. MOIL sells all its manganese ore in India and these sales account for roughly 82 to 85% of the total sales. Its key customers include Maharashtra Elektrosmelt and Bhilai Steel Plant and account for roughly 22% of the manganese ore sales in 2010. The top ten customers account for roughly 51.5% of the sales of manganese ore.

Objects of the offer
This is an offer for sale by the government and all the proceeds of the issue less expenses will go to the selling shareholders. As such there are no objects of the issue.

Financials
MOIL had a total income of Rs 1439.41 crs for the year ended March 2009 and Rs 1087.85 crs for the year ended March 2010. In the first six months of the current year ended September 2010, the sales were at Rs 692.49 crs. Its net profit after tax for the period was Rs 663.79 crs for March 2009, Rs 466.34 crs for March 2010 and Rs 330.72 crs for the half year ended September 2010. The EPS for the respective period is Rs 39.51 for March 2009, Rs 27.75 for March 2010 and Rs 19.68 for the half year ended September 2010 or Rs 39.37 on an annualised basis for the current year ending March 2011.

The sales realisation per ton of manganese ore was Rs 11,600 in 2009 before the slump of 2010 when the same came down to Rs 7,744. In the current year half year prices have again stabilised and are back at Rs 11,709 per ton.

As there is no dilution by way of fresh issue the earnings per share would remain the same.

Comparison
MOIL has compared itself with its sister company NMDC which is a mining company and two private sector mining companies Sandur Manganese and Iron Ore and Sesa Goa. The company stacks up well compared to all these peers.

MOIL has cash and cash equivalent of Rs 1762.87 crs as of 30^th September 2010 which corresponds to Rs 104.93 per share.

Valuation
Based on the EPS of Rs 27.75 for the year ended March 2010, the shares are being offered at a price earnings multiple of 12.25 times to 13.5 times. If one were to look at the current half year earnings on an annualised basis the PE multiple would be 8.63 times to 9.52 times. The shares are offered at an attractive valuation and leave money on the table. The question is the likely subscription that this issue would attract considering the attractiveness and also the fact that it is very small issue.

Likely subscription
Coal India received very heavy subscription and after the success of the issue, Power Grid also attracted excellent support. The total collection in terms of rupees in the two issues is given below.

Looking at the above data and the fact that the grey market premium for shares of MOIL has moved in a range of Rs 200-300, it would be fare to assume that subscription or the response to the issue would be mind boggling. It may not be out of place to mention that probably this would set new records for subscription to government issues.

Trying to hazard a guess for oversubscription in the HNI category, one could expect anything between 150-200 times. This number is based on the issue size for HNI’s being 185.22 crs and 150 times being Rs 27,783 crs and 200 times being 37,000 crs.

Similarly the retail category could see oversubscription of between 18 to 20 times as the amount involved in 18 times would be 7779 crs and at 20 times it would be Rs 8643 crs. It may also be mentioned that the retail limit has been increased to Rs 2 lacs from the earlier 1 lac which would bring higher subscription levels. Clearly these numbers would bring huge boost to the government divestment programme.

Conclusion
Clearly MOIL is an attractive offer for investors, which gives plenty of scope for appreciation. The question is the quantity of over subscription and this could be a cause for concern. Investors must subscribe for the issue.

SEBI Disclaimer: – I intend to subscribe to the above issue.