MOIL Limited is entering the capital market on 26^th November 2010, with an offer for sale of 3.36 crore equity shares of Rs. 10 each by the Government of India, Maharashtra and Madhya Pradesh. The issue, priced in the band of Rs. 340 to Rs. 375 per share, constitutes 20% of paid-up equity share capital of the company. Retail investors and employees will get a discount of 5%, making effective price band of Rs. 323 to Rs. 356.25. The issue will close on 30^th November 2010 for QIBs and on 1^st December 2010 for retail and HNI investors.

India's largest producer of manganese ore, accounting for approximately 50% of the total domestic production, MOIL (formerly known as Manganese Ore (India) Limited) has access to 21.7 million tonnes of proved and probable reserves and a total of 69.5 million tonnes of mineral resources (measured, indicated and inferred) of manganese ore. In FY10, it produced 1.1 million tonnes of medium grade manganese ore (with over 30% manganese content), at its 7 underground and 3 opencast mines located in Maharashtra and Madhya Pradesh.

MOIL is the only company after Coal India to receive a 5 on 5 grading (indicating strong fundamentals) for its IPO. For FY10, its sales stood at Rs. 969 crore with net profit of Rs. 466 crore and EPS of Rs. 27.7. In H1FY11, sales increased to Rs. 635 crore, on the backdrop of spurt in manganese prices, resulting in higher PAT at Rs. 332 crore, with EPS for the half-year of Rs. 19.7. Similarly, net margin expanded 420 basis points to 52.2% in H1FY11.

A debt-free Mini Ratna Category I PSU, the company's networth, as on 30-09-10, stood at Rs. 2,008 crore, resulting in BVPS of Rs. 120. It is a cash-rich company, with a cash surplus of Rs. 1,763 crore, as of 30^th September 2010.

At upper price of Rs. 375, the PE multiple works out to 9.50 times, based on expected current year earnings and 9.03 times, after applying retail and employee discount. The company can be compared with other listed resource-PSUs such as Coal Indian and NMDC. Coal India is trading at PE of 24.3 times while NMDC is presently ruling at 17.7 times, based on their expected FY11 earnings. Although Coal India and NMDC are much larger vis-a-vis MOIL, a single-digit PE multiple for MOIL is very attractive, given its rich mineral deposits and wide experience of over 4 decades in the industry.

Even if one argues that manganese prices are much more volatile as compared to coal and iron ore, SAIL is also quoting at PE multiple of over 16 times, based on FY11 earnings. Even on a PBV basis, 3.14x and 2.98x at Rs. 375 and Rs. 356.25 respectively, make the issue attractive. At 375, the company is expected to have a market cap of Rs. 6,300 crore, on listing.

The market was expecting a price band of about Rs. 450-500. The Disinvestment Ministry, probably, announced an attractive pricing (similar to Coal India and Powergrid) keeping an eye on the ongoing global tremors as well as the recent unfolding of scams in the country, which are keeping the markets nervous. The Government, which expects to raise Rs.1,122-1,237 crore through this offer, did not want to upset the smooth-running of divestment process, so as to achieve its FY11 target of Rs. 40,000 crore with ease. Hence, it seems to have left money on the table, especially for the retail investors.

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. Thus, a retail investor who can apply for a maximum of 527 shares at Rs.375 per share, is expected to see an allotment of close to 25 shares. 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. Alternatively, retail investors can even sell their application of Rs. 2 lakh, which will fetch them Rs. 5,500-5,600 immediately, as per current prevailing grey market rates .Retail investors are advised to apply at 375 per share and go for as large as they can and they need to pay 375 on application, though allotment shall be made after 5% discount.

We give a thumps-up to the issue and congratulate the Government on adopting such attractive pricing. Investors are advised to go for the issue at the upper end of 375.