Buy Sesa Goa; target of Rs 208: Motilal Oswal

Motilal Oswal is bullish on Sesa Goa and has recommended buy rating on the stock with a target of Rs 208 in its January 25, 2013 research report.
 
“Sesa Goa, adjusted PAT declined 41% YoY to INR5.1b (v/s our estimate of INR6b) due to higher than expected losses from core operations. Against our expectation of INR463m, adjusted loss after tax from core operations was INR1.7b, due to higher losses in iron ore and coke segment. The income tax dept has raised a demand of INR15b, disallowing EoU benefits pertaining to FY10-12. Based on legal opinion, Sesa has made no provisions.”
 
“Iron ore operations remain suspended due to ban on mining in Goa and Karnataka. In 3QFY13, there was sale (E-auction) of only 30k tons of iron ore from inventories at Karnataka mines. Though the CEC has recommended approval of 2.29mtpa capacity of Sesa's mines in Karnataka, the Supreme Court has not yet granted permissions. For its Goa mining operations, the Supreme Court hearings are yet to commence. Sesa has acquired the remaining 49% stake in WCL, Liberia at INR1.84b, as announced earlier. Capital expenditure and R&R will be announced by the end of FY13. The company will start transportation by road to get early cash flows (by 4QFY14).”
 
“Though uncertainties regarding the iron ore business persist, the impact on valuations is minor in view of the imminent merger with Sterlite Industries. High Court approvals are expected by the end of February 2013. On merged entity basis, stock is trading at 5.4x FY15E EPS and 0.6x FY15E BV, and an EV of 4.8x FY15E EBITDA. Buy with an SOTP-based target price of INR208 - 17% upside,” says Motilal Oswal research report.

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