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Net Sales Jumps 70% yoy: Sesa Goa announced its 2QFY11 results. Sesa’s Top-line grew by 70% yoy to Rs 907 cr against our
expectation of Rs 1,075 cr. Sales volumes during the quarter have gone up by 25% yoy to 2mn tonne (1.6mn tonne). Volumes
during the quarter were affected by lower production from Karnataka and Orissa mines on account of iron export ban by the
Karnataka government and logistics bottle necks at its Orissa mines. However, it partly managed to compensate for lower
production by selling additional iron ore from its Goa mine. Iron ore realization during the quarter was higher by 69% yoy to
US $76/tonne (US $45/tonne); aided the Top-line growth. On Pig Iron front, revenues gone up by 105% yoy to Rs 200 cr and were
supported by higher realizations and volumes, which grew by 21% yoy and 69% yoy respectively.
Operating margins at 32.2%: Operating profit during the quarter grew by 97% yoy to Rs 292 cr (Rs 148 cr). Sesa Goa has reported
450 bps jump in operating margin to 32.2% (27.7%). Sequential basis, however, margins gone down by 3,180 bps. Export duty on
iron ore has increased substantially to Rs 261/tonne from Rs 29/tonne, last year. The higher export duty was due to higher
composition of lumps in sales mix. Export duty on iron ore lumps during last year was at 5% compared 15% this year, while export
duty on iron ore fines remained same at 5%.
Bottom Line Jumps 125%: Aided by higher iron ore realizations and lower tax provisioning, the bottom line has risen by 124% yoy
during 2QFY11. Net profit during the quarter has gone up to Rs 374 cr from Rs 167 cr last year. The substantial jump in net profit
was aided by lower tax out go as the effective tax rate during the quarter was at 4.6% compared to 23% last year.
Concall Takeaways
Total iron ore production during the quarter came in flattish at 3.2mn tonne. The production during the quarter was affected
by Karnataka iron ore export ban and logistics issues at its Orissa mines. The iron ore sales during the quarter gone up by 25%
to 2.02mn tonne. The company has partly been able compensate for its lower volumes from Karnataka and Orissa mines
through incremental sales from its Goa mines.
Volumes from Karnataka remained flat yoy at 0.5mn tonne despite export ban from Karnataka mines. Sesa expects ongoing
litigation for lifting of ban on iron ore exports is expected to deliver favorable verdict by this month end.
Volumes from the Orissa mines also remained flat at 0.5mn tonne. The long term agreement with 3rd party miners is still going
on; this along with logistics bottlenecks continues to affect the volumes from Orissa operations. The FoB cost of iron ore from
this mine is US $90 per tonne.
Of the total iron ore volumes that company sold during the quarter 80% was in China. The company sold iron ore produced
from its Karnataka mines to steel producers in the same region.
Pig iron volumes during the quarter increased substantially owing to higher demand and liquidation of additional inventory
that was built up during the last quarter.
The company has healthy cash in its books to the tune of Rs 7,575 cr (excluding ICDs of Rs 1000).
Management has brought down its FY11 volumes growth guidance to 10-12% compared to 25% volume growth envisaged
earlier.
The company has total iron ore inventory of 5.3mn tonne by 2QFY11 end. The company proposed to bring it down to 1-1.5mn
tonne by FY11 end, by liquidating additional inventory through sales.
Royalty cost per tonne during the quarter came in at Rs150-175/tonne, which is higher compared to Rs 140-150 per tonne
during 1QFY11 as proportion of lump sales during the quarter was higher.
Sesa Goa has envisaged total capex of Rs 1,200-1,400cr during the year that is to be spent on its ongoing 50 mn tonne iron ore
expansion along with the expansion of pig iron and metallurgical coke capacity.
Effective tax rate guidance for the full year has been lowered to 15-16%, following the lower volumes from its Orissa mines,
which pay full tax.
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