Supreme Court’s decision to allow mining in Category B mines in Karnataka will give marginal relief to Sesa Goa because most of its operations are in Goa and are still shut. The company has little capacity in Karnataka, Abhisar Jain of Centrum Broking said.
“For Sesa Goa the limit is 2.29 million tonne for B Categroy mines in Karnataka. This production will come on-stream in FY14 and FY15. So, it will reduce some strain, but not all of it will go away,” he told CNBC-TV18.
Other steel companies like JSW Steel and Kalyani Steel will now get access to additional 6-8 million tonne of ore. “It is a positive development for JSW Steel and Kalyani Steel, but it would still take around three-five months for all the B Category mines to come on-stream, he elaborated.
Below is the edited transcript of Abhisar Jain’s interview with CNBC-TV18
Q: Ban on the Niyamgiri mining will continue, but the Supreme Court has allowed mining in Category B mines in Karnataka. Can you just put it into perspective for us how it would impact the stocks?
A: The Category B mine will help Sesa Goa, because they can now restart production after being compliant with Resettlement and Rehabilitation (R&R) plans as asked by the Supreme Court and the Central Empowered Committee (CEC).
For Sesa Goa 2.29 million tonne is the limit for B Categroy mines in Karnataka. This production will come on-stream in FY14 and FY15. There is some relief for Sesa Goa because earlier all its operations were shut in both Karnataka and Goa.
Q: What about companies like JSW Steel and Kalyani Steel as there will be more iron ore availability perhaps?
A: It is a positive development for these companies. We have been factoring in that the B Category mining could resume sometime in FY14, but since this judgement has come very early in FY14 first quarter itself, we believe that the B Category mines can slowly come on-stream now.
It would still take around three-five months for all the B Category mines to slowly come on-stream, but there would be an additional capacity available to the tune of 6-8 million tonne and this would make more ore available to JSW Steel and Kalyani Steel and it is a positive for them.
Q: Operationally things have been disastrous for Sesa Goa for many quarters now. Now that mining in Category B mines has been allowed, what kind of relief do you think it would bring about on the operations and then how would you approach the stock at this Rs 152 level?
A: It will reduce some of the strain, but not all of it will go away. The principle operations for Sesa Goa is in Goa and Goa still remains shut and there is limited visibility on when it can restart.
Obviously some of the strain will go due to the restart of Karnataka, but not all of it. It will have a limited impact, still because 2.29 million tonne is a small volume for Sesa Goa which was earlier having operations and capacity of almost 15-16 million tonne.
For the stock per se Sesa Goa is right now valued on the basis of this proposed merger of Sesa and Sterlite. So we had also been valuing the stock on Sum Of The Parts Valuation (SOTP) basis for the whole group. We have a fair value target of Rs 175 on the stock. So obviously we believe that at these levels the risk-reward ratio is in favour of the Sesa Goa stock.