Accumulate Sesa Goa; target of Rs 207: Emkay

Emkay Global Financial Services is bullish on Sesa Goa and has recommended accumulate rating on the stock with a target of Rs 207 in its April 25, 2012research report.

“Sesa Goa, average blended realizations at US$99/ tonne for iron ore came as a surprise, as it rose 6.5% QoQ while during the same time global iron ore prices have not changed much. This was due to benefit from monthly lag in prices applicable for long term contracts to Japan and Korea, as the prices previously were settled higher. Going forward in Q1FY13 the same is unlikey, as there would be more spot sales. Out of the total sales of 5.2 mt; contribution from Goa and Karnataka stood at 4.9 mt. and 0.2 mt respectively. We believe, Goa has already reached peak capacity utilizations and volume from Karnataka remains uncertain. Inventory sales for FY13 thus seem unlikely. Despite various concerns, the company managed to add 68 mt to the net reserves and resources (R&R) taking the total to 374 mt with an average grade of 56% (+) Fe. As per the management, most of it is from Goa. In other segments, contribution from met coke came back to positive territory (Rs 97 mn) against a loss of Rs 173 mn in Q3FY12. FY13 should see higher contribution from both pig iron and met coke segments after the capacity expansion.”

“As per the latest Supreme Court order (dated April 13 and 20), all the mines have to complete reclamation and rehabilitation study and submit that to the MoEF for fresh clearance. This we believe can delay process of restarting the mines. Also being under category ‘B’ Sesa needs to provide penalty (about Rs 100 mn) and on top of that we understand that Sesa’s mining lease would expire this October. Along with proposed production cap these issues would continue to be major overhang for the company in the near future. On the other hand the new Goan Govt is likely to announce its mining policy by 31st May’12 which would decide the way forward.”

“At CMP of Rs 186, the stock is trading at 4.1x its FY14E EPS and 6x FY14E EV/ EBITDA. On SOTP basis, we value the iron ore business at 3.5xFY14EV/ EBITDA (giving a discount of ~15% to the global peers). Stake in Cairn India has been valued at 30% discount to current market cap. Thus, we arrive at a target price of Rs 207/ share. Based on the recent price correction we upgrade the stock to Accumulate,” says Emkay Global Financial Services research report.    

Public holding more than 90% in Indian cos

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