Visit http://indiaer.blogspot.com/ for complete details Sesa Goa’s 2QFY2011 results were lower than our estimates. The top line was
lower by 10.3% on account of 14% lower-than-expected iron ore realisations at
US $73/tonne. The bottom line was lower by 21.3% compared to our estimates.
Dismal operating performance: Sesa Goa’s top line increased by 70.5% yoy to
`918cr. Iron ore sales volume at 2.0mn tonnes was up by 23.7% yoy. However,
volumes were severely affected by the export restriction imposed by the Karnataka
government at the end of July. Despite benchmark iron ore prices increasing by
~30% qoq, average realisations were lower by 19.1% qoq (up 48% yoy) at
US $73/tonne. Pig iron sales volume increased by 25.4% yoy to 84,000 tonnes.
Average realisation also increased by 35.6% yoy to `25,326/tonne, flat on a qoq
basis. In 2QFY2011, EBITDA margin declined by 2,349bp qoq to 37% because of
lower-than-expected realisations, higher export duty, increased royalty rates and
higher freight cost per tonne. Other income decreased by 37.6% qoq to `100.4cr
(up 12.5% yoy). Lower tax rate at 4.6% v/s 22.9% in 2QFY2010 led to a 131.3%
yoy increase in the bottom line to `385cr, down 70.4% qoq.
Outlook and valuation: Sesa Goa is currently trading at 4.8x FY2011E and 4.1x
FY2012E EV/EBITDA. On a P/BV basis, the stock is trading at 2.5x FY2011E and
2.0x FY2012E estimates. With volume growth minimal at 8–10% due to
government policy actions, reduction in Chinese imports of iron ore and
Sesa Goa’s diversification into an unrelated business through a 20% stake
purchase in Cairn, we maintain our Neutral view on the stock. Further, downside
risk to our estimates exists in case the ban on export of iron ore from Karnataka is
not revoked.
No comments:
Post a Comment