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Emerges top bidder in inter-se bidding for BSAL’s assets
Sesa Goa has completed the acquisition of Bellary Steel and Alloys’ (BSAL)
assets for a total consideration of INR 2,200 mn. The company along with JSW
Steel was in the reckoning for BSAL’s assets in Karnataka, which are in close
proximity to the existing operations of both the companies. Sesa Goa had
initially bid INR 2,060 mn for these assets, but lost out to JSW Steel’s INR 2,100
mn bid. However, Sesa Goa contested this decision as the winning offer was
delayed and the matter was referred to the high court for an inter-se bidding
process, where Sesa Goa bid INR 2,200 mn. Our understanding is that JSW Steel
did not submit a fresh bid and, hence, Sesa Goa was declared the winner.
Value addition to iron ore on cards
The rationale behind investing in these assets is primarily the ~700 acres of land
in BSAL’s possession, where a 0.5 mt steel plant was being set up. However, due
to lack of financial strength of BSAL, the expansion was put on hold. Both JSW
Steel and Sesa Goa were interested parties in these assets, primarily owing to
the proximity to their existing operations. The assets also include certain
buildings & structures, plants & machinery, and certain other assets related to
the 0.5 mtpa steel plant. Sesa Goa indicated that value addition (steel plant)
was the primary reason to bid for BSAL’s assets as the entire process is
expedited.
Outlook and valuation: Status quo; maintain ‘REDUCE’
Sesa Goa is currently facing volume growth challenges as Orissa mines are not
operational, export ban persists in Karnataka and Goa faces lack of clearances
for additional volume growth. The ongoing cost headwinds in the form of
increased royalty as well as higher export duty to 20% for both lumps (earlier
15%) and fines (earlier 5%) makes it increasingly difficult for export of iron ore.
Additionally, the impending mining bill which proposes 26% of net profit sharing,
if implemented, can also have a major impact on profitability going forward. We
currently have a ‘REDUCE/Sector Underperformer’ recommendation/ rating
on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Emerges top bidder in inter-se bidding for BSAL’s assets
Sesa Goa has completed the acquisition of Bellary Steel and Alloys’ (BSAL)
assets for a total consideration of INR 2,200 mn. The company along with JSW
Steel was in the reckoning for BSAL’s assets in Karnataka, which are in close
proximity to the existing operations of both the companies. Sesa Goa had
initially bid INR 2,060 mn for these assets, but lost out to JSW Steel’s INR 2,100
mn bid. However, Sesa Goa contested this decision as the winning offer was
delayed and the matter was referred to the high court for an inter-se bidding
process, where Sesa Goa bid INR 2,200 mn. Our understanding is that JSW Steel
did not submit a fresh bid and, hence, Sesa Goa was declared the winner.
Value addition to iron ore on cards
The rationale behind investing in these assets is primarily the ~700 acres of land
in BSAL’s possession, where a 0.5 mt steel plant was being set up. However, due
to lack of financial strength of BSAL, the expansion was put on hold. Both JSW
Steel and Sesa Goa were interested parties in these assets, primarily owing to
the proximity to their existing operations. The assets also include certain
buildings & structures, plants & machinery, and certain other assets related to
the 0.5 mtpa steel plant. Sesa Goa indicated that value addition (steel plant)
was the primary reason to bid for BSAL’s assets as the entire process is
expedited.
Outlook and valuation: Status quo; maintain ‘REDUCE’
Sesa Goa is currently facing volume growth challenges as Orissa mines are not
operational, export ban persists in Karnataka and Goa faces lack of clearances
for additional volume growth. The ongoing cost headwinds in the form of
increased royalty as well as higher export duty to 20% for both lumps (earlier
15%) and fines (earlier 5%) makes it increasingly difficult for export of iron ore.
Additionally, the impending mining bill which proposes 26% of net profit sharing,
if implemented, can also have a major impact on profitability going forward. We
currently have a ‘REDUCE/Sector Underperformer’ recommendation/ rating
on the stock.
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