Sesa Goa Q3 PAT seen down 33% at Rs 715.2 cr

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Sesa Goa Q3 PAT seen down 33% at Rs 715.2 cr

Largest producer and exporter of iron ore in private sector Sesa Goa is expected to report a profit after tax of Rs 715.2 crore in the third quarter of FY12, degrowth of 33% as compared to Rs 1,065.3 crore in a year ago quarter.

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Largest producer and exporter of iron ore in private sector Sesa Goa is expected to report a profit after tax of Rs 715.2 crore in the third quarter of FY12, degrowth of 33% as compared to Rs 1,065.3 crore in a year ago quarter.

Net sales are seen going down 10% to Rs 2,021.4 crore from Rs 2,250.10 crore year-on-year.

EBITDA is likely to fall 25% to Rs 913.4 crore in the quarter ended December FY12 versus Rs 1,220.27 crore in the corresponding quarter of last fiscal.

EBITDA is expected to be at 45.2% versus 54.2% during the same period.

Factors:

- Revenue likely to decline on weaker iron ore prices and sales volumes:

- Iron ore volumes for Sesa Goa are expected to decline by 10% plus largely led by
(i) Mining ban in Karnataka (ii) Lapse of mining lease in Orissa

- Sesa sells 63-65% of its iron ore volumes in 2HFY12

- Likely to have sold of their inventory of 0.8 mt at Karnataka mines in the e-auction conducted by Supreme Court

- At the end of Q2FY12, Sesa Goa maintained their target at 18 mt for FY12 (revised downward twice from 22-23mt) assuming that the mining ban is removed by Q4FY12

- SC hearing is scheduled for January 27, 2012 and output will be a defining factor in them doing anything above 16 mt

- Average iron ore realization is likely to be down YoY and flattish QoQ

- China's iron ore spot prices declined sharply from CIF(cost, insurance and freight) USD185/t CFR average in September to USD142/t in December
*Due to slowdown expectation in China steel demand
*Recessionary fears in world economy led by EU crisis

- Depreciating of rupee is expected to partially offset the decline in realizations QoQ as the entire Goa production is exported

- Margins likely to take a further hit due to export duty increase on iron ore to 20% in Budget 2011 ((Sesa Goa exports all of its Goa production which at present is the only area producing))

- Forex Play will hit the margins and PAT:
*Not included the effect of unrealized forex losses
*In Q2FY12 , EBITDA was hit by Foreign Exchange Loss booked on FCCB amounting to Rs 234 crore

- PAT to be impacted by Cairn India stake as it will appear under the heading profit from Associates:

- Sesa Goa acquired additional 1.5% stake in Cairn India:
*Post this acquisition, Sesa Goa holds 20% of the share capital of Cairn India
*Will cause 2HFY12 interest cost to go up due to higher debt on the back of Cairn stake purchase and lower other income due to cash reduction ((Recall: In Q2FY12 they purchased 51% in Western Cluster Limited (WCL) for Rs 400 crore))
*Sesa Goa acquired equity shares in Cairn India representing around 1.5% of the total paid-up share capital of Cairn India from Cairn UK
*Taking a Holding company discount (%) of 15%, Cairn stake purchase contributes roughly 125/share to Sesa Goa's share price