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HSBC upgrades MOIL shares to 'buy'

Shares of MOIL were up 6 per cent at Rs 132.85 on Thursday in afternoon trade.

ET Bureau|
Sep 26, 2019, 02.34 PM IST
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Despite weak fundamentals on a global basis, the brokerage said Indian manganese ore demand will be supported by relatively better fundamentals for the domestic steel industry and supply cuts at illegal mines in Odisha.
HSBC has upgraded shares of manganese ore-mining company MOIL to 'buy' from 'hold' with a target price of Rs 180 based on attractive valuations and rich dividends given by the company. Shares of MOIL were up 6 per cent at Rs 132.85 on Thursday in afternoon trade.

The brokerage said that the state-owned company is supported by healthy margins from the low-cost operations.

"The one year forward EV/EBITDA is now below 2 times and is considerably below the average over the last three years. As such, we believe the valuation looks attractive," said HSBC. "...while MOIL’s cash flows could be impacted due to lower profitability and higher project spend, the company’s strong net cash position should support an annual dividend yield of 5 per cent," said HSBC.
The brokerage said manganese prices could decline further but the impact on MOIL should be buffered.

Prices for benchmark manganese ore have already declined 40 per cent from the peak levels of March 2018 but marginal producers continue to make healthy margins at spot prices, which is not sustainable in an oversupplied market, said HSBC.

Despite weak fundamentals on a global basis, the brokerage said Indian manganese ore demand will be supported by relatively better fundamentals for the domestic steel industry and supply cuts at illegal mines in Odisha.

"We see a relatively modest decline in MOIL’s realised pricing. More importantly, MOIL’s existing cash position accounts for c.70 per cent of its current market capitalisation; therefore, downside should be limited," said HSBC.

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