Sell Sesa Goa; target Rs 192: Dolat Capital

“Sesa Goa profits (pre Cairn income), at Rs 5.7bn (DCe:Rs 5.73bn), were in line, as lower EBITDA at Rs 10.7bn (DCe Rs 11.2bn) was compensated by lower forex loss of `1.77bn (Dce Rs 2.3bn). Adjusted PAT declined 35% YoY to Rs 6.94bn (Dolat est: Rs 7.2bn). Realisations increased 14.1% QoQ/22.1%YoY to Rs 4.670/USD91.7 per tonne (DCe: Rs 4,428/USD87 per tonne) due to higher proportion of sales from Goa. Sales volumes fell 6.5%YoY to 5.03mn tonnes as Sesa discontinued its Orissa operations last year. Iron ore production decreased 22.3% YoY (excluding Orissa) to 3.33mn tonnes due to the ban on mining in Karnataka from August 27, 2012.”

“EBITDA declined 11.9%YoY to Rs 10.73bn (DCe: Rs 11.23bn) due to forex loss (Rs 200mn) in coking coal operations and lower production in the pig iron plant. EBIT for iron ore rose 37.7% QoQ to Rs 2,106 per tonne (DCe ` 2143)due to higher proportion of high-margin sales (87.5%) from Goa (Low cost operations). The coke division’s EBIT slipped by 300% QoQ and 178% YoY to a loss of Rs 178mn (DCe: Profit of Rs 120mn. The pig iron division’s EBIT declined 47%YoY to Rs 180mn (Dolat est: Rs 130mn) due to lower production and higher iron ore cost due to e-auction.”

“We believe given the current regulatory overhangs regarding the implication of the Shah commission report, weak iron ore pricing environment and the imposition of additional royalty due to MMDR act, Sesa Goa will remain under pressure. We maintain our Sell rating on Sesa Goa with a price target of Rs 192 (3x FY13 EV/EBITDA, Rs 105 per share for the holding in Cairn, valuing it at 30% discount to current market price),” says Dolat Capital research report.

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