Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa’s 3Q net profit grew 29% YoY and came in 3% below estimates.
ASPs were slightly below estimates due to higher domestic sales while costs
were slightly above. The Karnataka iron ore export ban might get lifted soon
but this might do more harm than good for Sesa if spot iron ore prices recede
on the back of that. Sesa is still awaiting environment clearances for mining
expansions and we expect FY12 to be another lacklustre volume growth year
for the company. Iron ore prices remain the main support for the stock but at
US$190/t, we see more downside than upside to prices. SELL stays.
No major surprises in 3Q results
Sesa’s 3Q volumes declined 21% YoY but came in 3% above estimates. However,
lower-than-expected ASPs and higher costs resulted in EBITDA coming in 2%
below estimates while rising 19% YoY. 3Q volumes were impacted by the
Karnataka iron ore export ban and logistical issues in Goa and Orissa. In Goa, the
new restrictions on timing and tonnage of trucks ferrying iron ore is impacting
both volumes and costs. In Karnataka, Sesa is now selling more iron ore in the
domestic market, where ASPs are lower, thereby hurting margins. Domestic sales
have risen to 15% of total volumes in 3Q from 3% in 3QFY10.
Volume growth outlook remains weak
The end of Sesa’s third-party contract in Orissa will impact volumes by 10% in
FY12. This should get compensated by the end of Karnataka’s export ban since
the High Court has given the Karnataka government six weeks to either notify
new rules to curb illegal mining or end the ban on iron ore exports. In Goa, the
new Mining Policy has not yet been announced and might await the finalization of
the New Mining Law at the centre. Sesa is still awaiting environment clearances
for mining expansions and volume growth will remain weak till this happens.
Iron ore prices remain the main support for Sesa’s stock
Spot iron ore prices have moved up to US$190/t (CIF China) and have driven a
10% outperformance of Sesa’s stock in the last one month. CLSA’s resources
team forecasts iron ore prices to weaken to US$121/t in FY12 and if this
prediction goes right, Sesa’s stock will see a big correction from current levels.
Our NPV of Rs250 for Sesa Goa is by no means a conservative valuation since it
assumes 1) approvals eventually coming through for higher mining output, and 2)
200mt accretion to reserves – both of which might now happen. Our estimates
assume iron ore prices to average US$100/t (CIF China) over FY12-15 and we
believe that prices need to be higher at US$150/t over this period to justify any
upside in the stock from here. We upgrade FY11 EPS by 7% factoring in higher
prices in 4Q and maintain SELL.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa’s 3Q net profit grew 29% YoY and came in 3% below estimates.
ASPs were slightly below estimates due to higher domestic sales while costs
were slightly above. The Karnataka iron ore export ban might get lifted soon
but this might do more harm than good for Sesa if spot iron ore prices recede
on the back of that. Sesa is still awaiting environment clearances for mining
expansions and we expect FY12 to be another lacklustre volume growth year
for the company. Iron ore prices remain the main support for the stock but at
US$190/t, we see more downside than upside to prices. SELL stays.
No major surprises in 3Q results
Sesa’s 3Q volumes declined 21% YoY but came in 3% above estimates. However,
lower-than-expected ASPs and higher costs resulted in EBITDA coming in 2%
below estimates while rising 19% YoY. 3Q volumes were impacted by the
Karnataka iron ore export ban and logistical issues in Goa and Orissa. In Goa, the
new restrictions on timing and tonnage of trucks ferrying iron ore is impacting
both volumes and costs. In Karnataka, Sesa is now selling more iron ore in the
domestic market, where ASPs are lower, thereby hurting margins. Domestic sales
have risen to 15% of total volumes in 3Q from 3% in 3QFY10.
Volume growth outlook remains weak
The end of Sesa’s third-party contract in Orissa will impact volumes by 10% in
FY12. This should get compensated by the end of Karnataka’s export ban since
the High Court has given the Karnataka government six weeks to either notify
new rules to curb illegal mining or end the ban on iron ore exports. In Goa, the
new Mining Policy has not yet been announced and might await the finalization of
the New Mining Law at the centre. Sesa is still awaiting environment clearances
for mining expansions and volume growth will remain weak till this happens.
Iron ore prices remain the main support for Sesa’s stock
Spot iron ore prices have moved up to US$190/t (CIF China) and have driven a
10% outperformance of Sesa’s stock in the last one month. CLSA’s resources
team forecasts iron ore prices to weaken to US$121/t in FY12 and if this
prediction goes right, Sesa’s stock will see a big correction from current levels.
Our NPV of Rs250 for Sesa Goa is by no means a conservative valuation since it
assumes 1) approvals eventually coming through for higher mining output, and 2)
200mt accretion to reserves – both of which might now happen. Our estimates
assume iron ore prices to average US$100/t (CIF China) over FY12-15 and we
believe that prices need to be higher at US$150/t over this period to justify any
upside in the stock from here. We upgrade FY11 EPS by 7% factoring in higher
prices in 4Q and maintain SELL.
No comments:
Post a Comment