Accumulate Sesa Goa; target Rs 197: Dolat Capital

Dolat Capital is bullish on Sesa Goa and has recommended accumulate rating on the stock with a target price of Rs 197 in its April 25, 2012 research report.

“Sesa Goa reported net profit at Rs 11.62bn boosted by forex gain of Rs 740mn and were below our estimates of Rs 12.04bn due to lower operating profit of Rs  9.93bn (our expectation: Rs 12bn). However adjusted for forex loss of Rs 1.6bn, Adj.EBITDA of Rs 11.6bn was marginally below our estimate. Sesa profits (pre Cairn associate profit) have declined by 52%YoY to Rs 6.96bn as its profits during the year were impacted by higher export duty, lower production and sales volumes, higher tax rate, lower other income (has turned into net debt company) and forex losses.”

“Iron ore sales fell by 22.4% YoY to 5.2 mn tonnes primarily due to continued ban in Karnataka and transport and logistics bottlenecks in Goa (loss of 1 mn tonne in Goa). Production of iron ore fell 11% to 6.3mn tonnes. Realisations increased by 5.1% QoQ to Rs 4910 per tonne (USD 98.9) below our expectation of Rs 4975 per tonne.Adjusted EBIT for iron ore was flat QoQ but declined - 30.6% sequentially to Rs 2110 per tonne (USD 42) due to higher export duty and fall in iron ore prices. Sesa had a strong increase of 22% to 374 mn tonnes to its Reserves & Resources in FY12 and currently has mine life of 17-18yrs at the current EC capacity of its mines.”

“Sesas volumes in Karnataka are at risk given the overall limit of 5 mn tonne set by the Supreme Court in Chitradurga and Tumkur region. Sesa Goa current EC limit of 6 mn tonne in Karnataka may be reduced by 45-50% to 2.5 to 3 mn tonne given the overall restriction. The timelines for starting the mining in Karnataka also remains uncertain and is dependent on the Supreme Court ruling and the pace of R& R plan implementation.We have reduced our FY14 estimates by 11% given the possibility of lower volumes in Karnataka. Accumulate the stock for target price of Rs 197,” says Dolat Capital research report.

Public holding more than 90% in Indian cos

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