Shares of mineral mining PSU major MOIL Ltd have surged over 80% in the last 1 year, significantly outperforming benchmark indices. With robust volume and margin growth forecasts, analysts now expect the stock to rise further by 18% over the next 12 months.
MOIL Flexes Production Muscle – Volume Growth Accelerates
MOIL, which enjoys a near monopolistic position in India’s manganese ore mining industry, has witnessed accelerating production growth in recent months.
The company achieved record monthly output of 185 kilo tonnes (KT) in December 2023, a massive 31% growth as compared to 2022. More importantly, production in April-December 2023 zoomed 41% year-on-year to 1.3 million tonnes (MT) – underlining strong volume momentum.
Higher ore volumes reflect the company’s success in enhancing mining efficiencies as Environment Clearance (EC) rated capacities get expanded. Management expects EC capacities to reach 3.3 MT per annum by FY 2024-end, creating room for further production ramp-up.
New Trigger – Global Supply Squeeze to Boost Realisations
While higher ore output itself drives earnings growth at MOIL, the company is set to benefit enormously from a global supply squeeze in the manganese market.
Production curbs at South Africa’s mega UMK mine and freight movement disruptions in the Red Sea region are constraining global ore supplies. This has led to surging high-grade manganese ore prices internationally.
With MOIL’s realisations directly linked to global pricing trends, analysts forecast the supply-demand mismatch to significantly boost the company’s profitability going ahead.
Robust Medium-term Demand Outlook for Manganese Ore
The rapid capacity expansion by domestic steel giants like Tata, JSW and JSPL will be a key driver for manganese ore demand in India over the next 5-7 years.
As per the National Steel Policy, the country targets 300 MT per annum steel capacity by 2030 – more than double current levels. Over 30 kg of manganese ore is consumed for every tonne of steel produced.
Thus, India’s manganese ore demand could triple from around 7 million TPA now to over 20 million TPA this decade. With its dominant market position and huge reserves, MOIL is best placed to cater to this exponential demand growth.
MOIL Stock Price May Surge 18% Further – Should You Buy?
Given the strong operational momentum and highly favourable industry backdrop, analysts at Antique Stock Broking expect MOIL’s stock to hit ₹365 over the next 12 months – an 18% upside from 9th Jan 2024 closing levels.
MOIL is currently trading at sub-5 forward PE and offers a healthy dividend yield of over 5% – fairly attractive valuations for a company that enjoys monopoly-like status in its operating industry.
With PSU stocks back in vogue amidst the ongoing capex rejuvenation cycle, MOIL presents a solid opportunity for investors to ride the India growth story over the coming years.
However, investors must be aware of potential downside risks such as a crash in global manganese prices if new ore supplies turn up unexpectedly. Execution delays in production expansion plans could also pose a risk to the upbeat projections.
Overall though, MOIL’s risk-reward profile seems compelling for investors with above-average risk appetite. The stock can be accumulated in a staggered manner on market corrections for a minimum 2-3 year perspective.