AC Choksi Share Brokers Private Limited

A C ChoksiShare Brokers Private LimitedA C Choksi Institutional Research | Initiation Report|MINING MOILApril 26, 2011Risk to our RatingsMOIL has plans to ramp up its production, but any decrease in demand for steelmay adversely affect prices and sales volumes for manganese oreManganese ore realisation and sales volume depends primarily on the demandfor consumption of manganese ore in the steel industry. Demand for steel productsis usually linked to regional or global economic growth. If economic growthdeclines the consumption of steel might decline leading to reductions in demand formanganese ore. Prices of steel are affected by factors such as demand & supply gap,prices of key raw materials, worldwide production capacity, capacity-utilizationrates, innovation or improvement in steel manufacturing process etc. Anysignificant decline in the price of steel could result in the decline of manganese oreprice which can adversely affect MOIL's business and our forecasts.If JV's don't kick in at the expected timeFor MOIL to increase sales in its value added products, the JV with SAIL &RINL needs to start contributing at the expected time. Any delay in such mightadversely affect the business. However we have not factored anything on the JVfront as we believe that they might start contributing from FY 14 onwards.The Draft Mines and Minerals (Development and Regulation) Bill, 2010 thathas been proposed to replace the Mines and Mineral Development andRegulation Act, 1957 may adversely affect the operating & financial results ofMOIL.The bill contemplates that the holder of the mining lease is liable to anannuity equal to 26.0% of the profit as annual compensation and employmentand other assistance in accordance with the Rehabilitation and ResettlementPolicy of the concerned State Government. It implies that it proposes a 26%share in mining profits. In its current form the impact of the enactment onMOIL's financial position couldn't be exactly determined. But this should notbe under estimated as it might pose a threat to MOIL's future profitability &our forecasts.Operating costs scale up & margin contraction.We have assumed that MOIL would be able to maintain its margins. Scalingup of operating costs more than expected combined with lower than expectedManganese ore realisations may pose a threat to our ratings._____________________________________________________________________________________ A C Choksi Institutional Researchresearch@acchoksi.com 10