Rosy outlook for steel sector augurs well for MOIL

Healthy growth in steel production over the next few years and a good opportunity to substitute imported manganese ore will directly benefit MOIL, the largest manganese ore producer in the country.

Demand for manganese, used for desulpherisation and strengthening of steel, is directly dependant on the outlook for the steel industry. A tonne of steel uses roughly 30 kg of manganese ore.

With the government putting much thrust on infrastructure spending in the 12th five-year plan, the steel sector is expected to grow 9-10% in the coming years. Additionally, India's per capita steel consumption is nearly 50 kg against the world average of 210 kg.

Another major application of manganese is in production of ferro-alloys such as ferro-manganese and silico-manganese. However, production of manganese ore in India is hardly sufficient to meet the requirements of the steel industry. As a result, 30% of the total manganese requirement of the country is imported. MOIL, with locational advantage over its peers, is well positioned to substitute these imports.

To meet growing demand, the company plans to ramp up its production capacity from 1.2 million tonnes (MT) to 2.2 MT in 7-8 years. The company is also expanding its value-added products capacity to control costs and follow the industry trends. Its joint venture with SAIL and RINL to produce ferro-alloys will help it capture a greater part of the value chain and ensure offtake of its ore as well.

With low cost of production and a planned capital expenditure of around Rs 800 crore, the miner will continue to generate free cash flows even during times of distress. Its debt-free balance sheet is bolstered by a cash pile of Rs 2,000 crore and the company is expected to generate Rs 280 crore of free cash flow annually over the next five years.