Hold Sesa Goa; target of Rs 153: Emkay

Emkay Global Financial Services has recommended hold rating on Sesa Goa with a target of Rs 153, in its October 26, 2012 research report.

“Sesa Goa, seasonal impact due to monsoon and mining ban in Goa took a toll on the operational performance of the company in a big way. With Karnataka still waiting to restart production, fresh ban on mining and transportation of iron ore in Goa pulled down the iron ore production and sales volume during the quarter to 0.4 and 0.2 mt respectively. The iron ore realization on the other hand stood at Rs 4,627/ tonne (US$84) for the quarter. The fall in USD realizations was partially offset by 2% depreciation in INR during the quarter. Met coke and pig iron business did well during the quarter with the commissioning of the new capacities. Adjusting for the forex gain of Rs 1.89 bn on account of currency fluctuation, the EBITDA stands at Rs 58 mn with margin being a meager 2%. Cairn India’s contribution of Rs 4.64 bn helped the consolidated PAT to come at Rs 5.22 bn.”

“In Karnataka the clearance from MoEF and mining plan from IBM are yet to be received. Coupled with renewal of mining lease, we believe this might take a longer time. On top of that the recent ban on the mining and transportation of ore in Goa by the Supreme Court poses a big risk to the company’s operations. We have not assumed any iron ore sales volume for H2FY13 while our FY14 revised estimates captures 11 mt from Goa and 2.3 mt from Karnataka. We have also cut our estimates for pig iron and met coke as iron ore shortage would keep both the plants under low utilizations. Liberia project is progressing well with good exploration in one of the mines and can be a major sentiment booster for the stock. Sesa Sterlite merger process also is likely to be completed by end of CY12.”

“At the CMP of 170, the stock trades at 4.3xFY14 EPS and 6.6xFY14 EV/ EBITDA. Valuing the core business at 3xFY14 EV/ EBITDA and along with 40% discount to Cairn India current market value, the target prices stands at Rs 153. Maintain HOLD,” says Emkay Global Financial Services research reports.  

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