Sesa Goa Q2 PAT seen up 400 times on Cairn addition
Sesa Goa, a subsidiary of London Stock Exchange-listed Vedanta Resources, is set to announce its second quarter numbers today. Analysts on an average expect the company's profit after tax to grow by nearly 400 times to Rs 475 crore during the July-September quarter from Rs 1.28 crore in a year ago period due to inclusion of Cairn India's numbers.
October 26, 2012 / 11:59 IST
Sesa Goa, a subsidiary of London Stock Exchange-listed Vedanta Resources, is set to announce its second quarter numbers today. Analysts on an average expect the company's profit after tax to grow by nearly 400 times to Rs 475 crore during the July-September quarter from Rs 1.28 crore in a year ago period due to inclusion of Cairn India's numbers. Cairn India, wherein Sesa Goa holds around 20 percent stake, is an associate company now.
Analysts also expect foreign exchange gain of around Rs 150 crore for the quarter. Profit after tax will include a proportional contribution of Rs 464.44 crore from Cairn India for the quarter (20% of Cairn’s PAT of Rs 2322.2 crore amounts to Rs 464.4 crore).Net sales are likely to fall by 53 percent to Rs 370 crore from Rs 784 crore during the same period.Earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to go down by 71 percent year-on-year to Rs 75 crore in the July-September quarter.EBITDA margin is seen falling drastically to 20.3 percent as against 32.4 percent (not taking into account the forex gain/loss at EBITDA level in Q2FY12). EBITDA margin is expected to be at 20.3 percent versus 2.6 percent (with taking into account the forex gain/loss at EBITDA level).Seasonal business: Q2 is seasonally weak a quarter as mining is impacted by monsoons. Sesa Goa has mines in Goa and Karnataka. Goa accounts for 80% of its sales volumes (capacity of 15 mtpa) and Karnataka accounts for 20% of its volumes (capacity of 6 mtpa). Mining ban exists in both places now. Hence, operationally Sesa is a dud:Sesa Goa's 20 percent investment in Cairn at Cairn’s current market price of Rs 335 will account for Rs 90 a share of Sesa's current market price of Rs 169.2/share.This is taking a 40 percent discount to the current value of Sesa's 20 percent holding in Cairn. Hence, the core business of Sesa is valued at Rs 79/share but it is totally non-operational.Analysts feel the Sesa Goa will report a drop of 86 percent in iron ore sales volume of 0.2 mt for Q2FY13 as against 1.6mt in previous quarter.This quarter was especially bad as mining ban in Goa was introduced from September and Karnataka ban still continues. Iron ore shipments have declined due to(i) Nil volumes from Karnataka mines as against 710 kilo tones in Q2FY12.(ii) 75% decline in Goa shipments to 0.2 mt (Goa constitutes 80 percent plus of Sesa’s sales)(iii) Transport restriction imposed in Goa during the quarter(iv) Limited exports in July/August due to monsoonKey thing to watch out for would be the management’s commentary and the guidance on ongoing mining ban in Goa:Supreme Court allowed some mines in Karnataka to resume mining operations in line with recommendations of the Central Empowered Committee (CEC)CEC has now commenced the process for other mines including Sesa’s mine in Karnataka.CEC has approved Sesa Reclamation and Rehabilitation plan at a provisional production capacity of 2.29 mtpa.The management expects to commence mining in Karnataka subject to receiving the court's approvalEBITDA to decline due to lower iron ore realization:Average iron ore realization is likely to decline 19 percent QoQ to USD 80/tonne due to significant decline in international iron ore prices in Q2FY13.Average iron ore spot prices in China have declined 18 percent YoY to USD 118/tonne CFR.Smaller Divisions have shown a growth in production but will aid only the topline:Met Coke was up by 30 percent at 82,000 tonnes versus 63,000 tonnes YoY and pig iron rose by 28 percent YoY to 83,000 versus 65,000. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
