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?
Imagine yourself hundreds of meters below the ground level in a mine where explosions take place on a daily basis to break rock blocks, and tonnes of ore are extracted using the same route that is used by the miners as passage. Imagine trying to take sane journalistic notes at the same depth, with visions of the worst underground mining accident movies slamming across your mind. Well, that’s what MOIL does to you; or rather, did to us, when we attempted a real as-is-where-is story by going deep inside MOIL Ltd’s (formerly known as Manganese Ore India Limited) Kandri mines near Nagpur, India. It would be a slanted view if we were not to accept that in reality, leave our fervent imagination aside, MOIL has more or less achieved global standards in mining operations – the company has been the winner of the National Safety Award, now for many years continuously. To that effect, the mining behemoth also holds the trophy for the longest accident free period. But then, simply having a great safety record is not guarantee enough for an IPO to be successful – and that too when it’s your first IPO ever! For MOIL, the upcoming IPO of 33.6 million shares for raising around Rs.12.38 billion, is being viewed very positively by the industry, yet, for reasons that might go against MOIL.
But more of that later. First, MOIL’s strategic issues. The first gargantuan hurdle MOIL faces is its legacy – it’s a century old company (established in 1896 as Central Province Prospecting Syndicate) and has for most of its existence, stuck headfast to legacy management procedures, structures and vision. Yet, during the last decade, the company has hit the right chords and grown aggressively. Since financial year 2005-06, MOIL’s top line has grown by a mind-boggling 200% from Rs.3.6 billion to Rs.10.87 billion in the last financial year (2009-2010). Of course, FY 2008-09 was even better with Rs.14.39 billion as revenues. The key factor for the company’s long term success has been, without doubt, monopoly government facilitated access to mines – the reason why MOIL now caters to more than 50% of the country’s total manganese ore demand.
On the positive side for MOIL, manganese apparently has a fantastic future. After iron, aluminium and copper, manganese is the world’s fourth most used metal. CARE Research points out that 90% of the world’s manganese production is used for desulphurisation and strengthening of steel (30 kgs of manganese is required for producing 1 tonne of steel). Thus, the manganese ore industry is directly related to the volatility and the cyclicality of the global steel industry. The domestic steel demand is expected to grow at a CAGR of about 9.2% during the period FY11 to FY15. India’s steel production, which is around 70 MT at present, is expected to grow to 120 MT by that time. Correlating these figures appropriately, it’s clear that the annual demand for manganese ore in the country could grow to 4.1 million tonne (MT) by FY 2012 itself from the existing level of 2.4 MT at present. But unfortunately MOIL does not appear to be prepared enough to make the most of the opportunity. As per K. J. Singh, CMD, MOIL, “The company is set to increases its ore production to 1.5 MT from the existing 1.1 MT by FY2015 at an investment of Rs.7.68 billion.” And the basic reason, perhaps, is the slower pace in the development of new mines as against the robust demand. What’s more interesting is the fact that 7 out of 10 mines operated by MOIL are around a century old.
But more of that later. First, MOIL’s strategic issues. The first gargantuan hurdle MOIL faces is its legacy – it’s a century old company (established in 1896 as Central Province Prospecting Syndicate) and has for most of its existence, stuck headfast to legacy management procedures, structures and vision. Yet, during the last decade, the company has hit the right chords and grown aggressively. Since financial year 2005-06, MOIL’s top line has grown by a mind-boggling 200% from Rs.3.6 billion to Rs.10.87 billion in the last financial year (2009-2010). Of course, FY 2008-09 was even better with Rs.14.39 billion as revenues. The key factor for the company’s long term success has been, without doubt, monopoly government facilitated access to mines – the reason why MOIL now caters to more than 50% of the country’s total manganese ore demand.
On the positive side for MOIL, manganese apparently has a fantastic future. After iron, aluminium and copper, manganese is the world’s fourth most used metal. CARE Research points out that 90% of the world’s manganese production is used for desulphurisation and strengthening of steel (30 kgs of manganese is required for producing 1 tonne of steel). Thus, the manganese ore industry is directly related to the volatility and the cyclicality of the global steel industry. The domestic steel demand is expected to grow at a CAGR of about 9.2% during the period FY11 to FY15. India’s steel production, which is around 70 MT at present, is expected to grow to 120 MT by that time. Correlating these figures appropriately, it’s clear that the annual demand for manganese ore in the country could grow to 4.1 million tonne (MT) by FY 2012 itself from the existing level of 2.4 MT at present. But unfortunately MOIL does not appear to be prepared enough to make the most of the opportunity. As per K. J. Singh, CMD, MOIL, “The company is set to increases its ore production to 1.5 MT from the existing 1.1 MT by FY2015 at an investment of Rs.7.68 billion.” And the basic reason, perhaps, is the slower pace in the development of new mines as against the robust demand. What’s more interesting is the fact that 7 out of 10 mines operated by MOIL are around a century old.
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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