Reduce Sesa Goa; target Rs 189: Aditya Birla Money

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Reduce Sesa Goa; target Rs 189: Aditya Birla Money

Aditya Birla Money is bearish on Sesa Goa (SGL) and has recommended reduce rating on the stock with a target price of Rs 189 in its January 31, 2012 research report.

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Aditya Birla Money is bearish on Sesa Goa (SGL) and has recommended reduce rating on the stock with a target price of Rs 189 in its January 31, 2012 research report.

"Sesa Goa (SGL)'s consolidated net sales increased 16.3% YoY to Rs 26.2bn on account of (1) higherthan- expected iron ore realisations at Rs 4743 per tonne, up 22.2% YoY and (2) higher sales volumes at 5.04mn tonnes, up 4.9% YoY due to release of inventory. Production of iron ore was down 29.5% due to the ban on mining operations in Karnataka. SGL's consolidated adjusted EBITDA declined 11.8% YoY to 10.9bn on account of higher export duties. SGL's consolidated adjusted PAT declined 23.4% to Rs 8.1bn (including share of profits from Cairn investment) on account of (1) lower EBITDA and (2) higher tax rate at 31% as compared to 19.4% in Q3FY11."

"On account of lower-than expected fall in iron ore prices, we increase our spot iron ore price (FOB) assumptions for Q4FY12 from $96 per tonne to $120 per tonne. We also raise our iron ore price (FOB) assumptions for FY13 by 10.5% from $95 per tonne to $105 per tonne. Owing to the increase in our iron ore price assumptions for Q4FY12E, we increase our FY12E EPS by 20.3% to Rs 27.4 (excluding share of profits from Cairn India investment). On the other hand, despite the increase in our iron ore price (FOB) assumptions for FY13, we cut our FY13E EPS for SGL by 2.5% to Rs 13.2 (excluding share of profits from Cairn India investment) on account of the recent increase in export duty on iron ore from 20% to 30%."

"As a result of the increase in export duty on iron ore from 20% to 30%, our 1 year forward DCF value for SGL decreases by 3.4% to Rs 199 from Rs 206 earlier. Note that we have included the impact of the proposed mining bill (MMDR) on SGL in the form of additional royalty on iron ore in our model from FY13E onwards. We continue to value SGL at a 5% discount to our 1 year forward DCF value on account of the overhang of a possible ban on iron ore mining or an export ban in Goa, giving us a fair value of Rs 189. Our target price of Rs 189 for SGL implies a potential downside of 7.2% from the last closing price. We, thus, downgrade our rating on Sesa Goa from Accumulate to Reduce," says Aditya Birla Money research report.

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To read the full report click on the attachment