Accumulate Sesa Goa; target of Rs 190: Dolat Capital

Dolat Capital is bullish on Sesa Goa and has recommended accumulate rating on the stock with a target of Rs 190 in its January 25, 2013 research report.
 
“Sesa continues to be impacted by the regulatory uncertainty in the Indian iron ore industry. We believe that its iron ore operations in Karnataka (falls in B Category mines where Supreme court and has not yet given permission to operate) and Goa (MOEF clearance and Supreme Court approval awaited for restarting the mines) can remain suspended for longer period of time. Post the merger of Sterlite Industries, iron ore business will only contribute 5-6% of the consolidated EBITDA and its valuations (Sesa Sterlite) will be driven by the performance of its Oil, Zinc and Aluminum business. We maintain our Accumulate rating on the stock with a price target of Rs 190 per share.”
 
“Sesa virtually had no iron ore sales as ban on iron ore mining in Goa and Karnataka continued during the quarter. Net sales for Sesa fell by 91%YoY/ 21%QoQ to Rs 2.27bn whereas it reported marginal EBITDA loss of Rs 1.14bn (DCe: Rs740mn) due to poor performance of coke division. Realization of iron ore increased by 74.8%YoY to USD 63 per tonne as it sold 0.03 mn of its iron ore to domestic operations where realizations are lower. Iron ore division reported EBIT loss of Rs 1.46bn as against EBIT profit of Rs 1.31bn in Q2FY13 and Rs 10.59bn in Q3FY12 as the operations were virtually shut. However Coke division also reported a loss of Rs 264mn (DCe: Profit of Rs 115mn ). Pig iron division reported EBIT of Rs 79.2mn as against our estimate of Rs 160mn given the iron ore availability issues and lower demand for pig iron. Interest cost rose by 39.8%QoQ to Rs 1.02bn (DCe: Rs 600mn) as it was impacted by forex loss of Rs 280mn as against a forex gain in Q2FY13. It also had a forex loss of Rs 250mn (DCe: Rs 1.31bn).Sesa PAT (pre Cairn) reported a loss of Rs 1.72bn (DCe: Rs 1.98bn) whereas post Cairn associate profit it declined by 4.8% QoQ to Rs 4.96bn (Dce: Rs 4.44bn),” says Dolat Capital research report.

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