Sesa Goa Q2 PAT seen down 25% at Rs 289 cr YoY

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Sesa Goa is likely to report a profit after tax of Rs 289 crore in the second quarter of FY12, a fall of 25% as compared to Rs 384.9 crore in the corresponding quarter of last fiscal.

PAT does not include Rs 70 crore losses that may come in due to currency fluctuations.

Net sales are expected to go up by 7% to Rs 970 crore from Rs 906.8 crore and EBITDA is seen going up by 15% to Rs 376 crore from Rs 328.3 crore year-on-year.

EBITDA margin is likely to be at 38.8% in July-September quarter of FY12 as against 36.2% in same quarter the previous year.

On quarter-on-quarter basis, net sales are expected to go down 54% and EBITDA to down by 67%. PAT is seen going down by 66%.

Sales volumes:

Q2 is seasonally weak quarter for Sesa Goa due to monsoons

Sesa Goa's iron sales have declined 15% to at 1.55mt during 2QFY12 versus 1.82mt in 2QFY11, largely due to closure of Orissa operations led by closure of Orissa mines, export restrictions and mining ban in Karnataka

Sales volume break up (YoY)

•         Karnataka up 58% at 0.71mt versus 0.45mt ((Benefited by good volumes prior to the imposition of the mining ban))

•         Goa down 10% at 0.83mt versus 0.92mt (be impacted by heavy rains in Goa)

•         Orissa at NIL versus 0.45 mt in Q2FY11 ((Closure of Orissa operations))

Sesa still has 0.8mt of inventory, which is likely to be liquidated in the e-auction being conducted by MSTC

FY12 target volumes have been cut from 24mt to 21.3mt and now further cut to 18mt

Strong iron ore prices to drive revenue and EBITDA growth on a YoY basis

FOB realizations are expected come in 3% lower on a QoQ at approximately USD 86/tonne

Average iron ore spot prices in China increased 27% YoY to USD184/ton CIF (cost insurance freight)) on higher Chinese imports and constrained supply

However, higher domestic mix is expected to dent blended realization despite firm global spot prices

PAT to be hit because of currency fluctuations

(JSW Steel took a hit of approximately Rs 500 crore and Sterlite reported a Rs 450 crore net loss because of currency fluctuations):

Forex losses due to FCCBs following depreciation of the Rupee versus USD may come at around Rs 70 crore

((As on June 30th, 2011 number of FCCBs was 2160 of USD 1 lakh each))

PAT is also likely to decline sharply because of a substantial decline in other income and increase in interest costs

During the Q2, Sesa Goa acquires 51% in Western Cluster Limited (WCL):

Sesa Goa acquired 51% stake in WSL, Liberia, for a cash consideration of USD 90 million (approximately Rs 400 crore)

WCL will develop the Western Cluster Iron ore project in Liberia

WCL has potential iron ore resources of over 1bn tonnes (around 330 million tones of saleable product)

Close proximity to the existing port infrastructure and has access to land for railway corridor