It’s India’s Largest Manganese ore Producer and a Mini-Ratna PSU too. But with Rs.17 Billion free Cash Reserves Lying Unused, one wonders why The Government wishes MOIL to go for an IPO?
MOIL officials tell us that they are now speeding up their exploration initiatives in order to catch up with the scenario. K. J. Singh further informs, “We are actively involved in exploration and development activities with a view to increase our proved manganese ore reserves. In addition, an area of 814.71 hectares in the State of Maharashtra has been reserved for us by a notification from the Ministry of Mines in October 2009.” Besides, the mining firm has already spent around Rs.55 million in the last 3 fiscals on exploratory drillings and is planning to spend around Rs.500 million annually in equipment from now on to increase production. But as of now, demand growth has bizarrely outpaced MOIL’s progress in adding new reserves and production.
Meanwhile, MOIL has also started scouting for opportunities available overseas. As confirmed by senior officials of the company, at present it’s looking forward to acquire mining properties in South Africa (in joint venture with NMDC), Turkey and Congo. And considering the fact that the company’s balance sheet is carrying free reserves worth a whopping Rs.17 billion and absolutely no debt; funding its overseas plans should not be a big task for MOIL. The company has joined hands with Steel Authority of India and Rashtriya Ispat Nigam under different ventures to set up 2 ferro-alloy projects at an investment of Rs.400 crore and Rs.200 crore respectively. The joint ventures, which are scheduled to be operational by July 2012 are certainly expected to boost MOIL’s bottom line by a strong margin.
All that to one side, still, MOIL’s IPO – which will certainly be oversubscribed many times – does not make strategic sense. Counting on the miner’s huge cash reserves of Rs.17 billion, debt-free status, growth opportunities and its 3-year weighted average return on net worth (RoNW) of 41%, it’s quite strange that the government has allowed MOIL to go for an IPO and give away equity shares, considered globally as the costliest form of funding. Rather than that, if at all MOIL wished funding beyond the massive cash reserves that it currently has, it could easily have gone the debt route – a cheaper option by all standards. If the government wanted money directly into its coffers, especially as the Sensex is touching historical highs, then the government could have directly gone the disinvestment route (wherein it could have sold its shares directly to the public at a price higher than what the current offer is) rather than an IPO, which would end up valuing the company’s equity lower than the real market value. Clearly, our strategic call might be a tad too late, given MOIL has already crossed the bridge (November 26, 2010, is the offer opening). Now that the horses have bolted, Godspeed and let the Indian public become richer.
Meanwhile, MOIL has also started scouting for opportunities available overseas. As confirmed by senior officials of the company, at present it’s looking forward to acquire mining properties in South Africa (in joint venture with NMDC), Turkey and Congo. And considering the fact that the company’s balance sheet is carrying free reserves worth a whopping Rs.17 billion and absolutely no debt; funding its overseas plans should not be a big task for MOIL. The company has joined hands with Steel Authority of India and Rashtriya Ispat Nigam under different ventures to set up 2 ferro-alloy projects at an investment of Rs.400 crore and Rs.200 crore respectively. The joint ventures, which are scheduled to be operational by July 2012 are certainly expected to boost MOIL’s bottom line by a strong margin.
All that to one side, still, MOIL’s IPO – which will certainly be oversubscribed many times – does not make strategic sense. Counting on the miner’s huge cash reserves of Rs.17 billion, debt-free status, growth opportunities and its 3-year weighted average return on net worth (RoNW) of 41%, it’s quite strange that the government has allowed MOIL to go for an IPO and give away equity shares, considered globally as the costliest form of funding. Rather than that, if at all MOIL wished funding beyond the massive cash reserves that it currently has, it could easily have gone the debt route – a cheaper option by all standards. If the government wanted money directly into its coffers, especially as the Sensex is touching historical highs, then the government could have directly gone the disinvestment route (wherein it could have sold its shares directly to the public at a price higher than what the current offer is) rather than an IPO, which would end up valuing the company’s equity lower than the real market value. Clearly, our strategic call might be a tad too late, given MOIL has already crossed the bridge (November 26, 2010, is the offer opening). Now that the horses have bolted, Godspeed and let the Indian public become richer.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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