Manganese Ore India diversifying at the cost of core ops

Manganese Ore India (Moil), which commanded a little over half of the country’s manganese ore production just four years ago, has since lost over 12% market share. Yet, rather than take steps to protect and further its core turf, the state-owned company has been trying to diversify into new, unrelated segments.

India’s manganese ore imports have risen from 6.86 lakh tonne in 2007-08 to 16 lakh tonne between 2007-08 and 2011-12, the compounded annual growth rate working out to 23%.

Production has remained more or less stagnant over this period, at around 27 lakh tonne a year.

Moil’s production has, however, declined from 13.65 lakh tonne in 2007-08 to 10.07 lakh tonne in 2011-12, giving it a market share of around 38% today.

“Our market share has gone down due to entry of new private players like Adhunik Metal and a few small players,” said K J Singh, chairman-cum-managing director, Moil.
Why then is the company trying to diversify into other, unrelated areas?

“We don’t want to make our dependence on one commodity and in search of growth, diversification is must,” said Singh.
Among other things, Moil plans to set up a power plant and has sought a coal block from the government. In fact, it has already floated Expression of Interest from private mine developers for exploiting the coal block which is yet to be allocated.

“We are also planning to mine chromite, which is used in steel making, and phosphate, which is used in fertiliser manufacturing,” said Singh.

Analysts, however, aren’t convinced the company can or should undertake these diverse operations at a time when its core business is eroding, leading to a decline in sales and profits.
Last fiscal, the company clocked sales of `905 crore and a net profit of `410 crore compared with `973 crore and `480 crore in 2007-08, respectively.

Besides, both coal mining and power are quite crowded.
“Moil will do better justice to its shareholders if it shuns the idea of diversifying into unrelated areas where it lacks the expertise,” said Ram Modi, senior analyst, Dolat Capital.

Ashish Matani, Equity Analyst, Derivium Tradition (India), said that diversifying into chromite and coal mining and setting up power plants would be too extravagant a project to execute, considering the large capital cost and managerial bandwidth required. Moreover, the projects would take at least 6-7 years to materialise, he said.

“We believe Moil should first concentrate on completing its manganese expansion plans and setting up ferro-alloy capacities which should add value over the medium term,” he added.

To be sure, even as India imported 16 lakh tonne of manganese ore — of which 95% was lumps — it exported 8 lakh tonne of high-grade manganese alloys manufactured by ferro and silico manganese plants run by private companies.

Moil could easily get into production of ferro alloys, which appears to be the ticket to prosperity for these smaller players.

Singh said the company already runs a small 10,000 tonne per year ferro alloy plant and is on the way to setting up two ferro alloy plants in joint venture with Steel Authority of India (SAIL) and Rashtriya Ispat Nigam (RINL).

But Kishan Lal Mehrotra, ex-CMD of Moil, during whose tenure in 2007-08 Moil had signed the joint venture pact with SAIL and RINL, had a different take on this.

“Both the projects (JVs) were included in the 100 days programme of UPA-II regime and steel ministry had directed Moil to kick-start both the projects within 100 days in May 2009. Then, why are these projects still in the lurch even after three years?”

Meanwhile, the delay in Moil’s project has proved a blessing for many private players, some of which, in fact, started their ferro alloys plants after Moil entered into the JVs.

More ironically, most of these private operators buy raw material from Moil to make the value added product.

Curiously, Moil has also put a plan to set up a sintering plant --- which could help in improving the quality of fines by 5-7% and thereby boost realisations on its produce --- on hold. The company had even purchased land in Vizag for the plant in 2007-08. But the project never took off.

Privately, Moil officials admit that a sintering plant could make a huge difference.

But even here, Moil appears to have ceded the early mover advantage to private players.