The rest of post is inspired by and adapted from this wonderful post on debt capacity bargains by Prof Sanjay Bakshi.

MOIL, a Mini Ratna, is India‘s largest  producer of manganese ore accounting for ~50% of the country’s total output. At present, MOIL operates 10 mines, six located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All these mines are about a century old. Except three, rest of the mines are worked through underground method.

MOIL is a debt free company, here is a snap shot from 2014-15 annual report

How much money would you lend to MOIL against the security of its business ?

 

Other things remaining unchanged, it’s prudent to lend to large companies whose businesses are not cyclical. If a business is cyclical, then a prudent banker would not depend on peak earnings. Rather, he would compute average past earnings and then ask for a higher interest cover on those earnings than would have been the case if those earnings were not cyclical. ~ Sanjay Bakshi

 

Earnings of MOIL are not stable and dependent of future of steel industry and we know that the steel … Read the rest