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SESA GOA
PRICE: RS.261 RECOMMENDATION: BUY
TARGET PRICE: RS.340 FY12E P/E 4.9X; EV/EBITDA 4.6X
Quadruple of export duty to 20% on iron ore fines - big negative
surprise
n Government has quadrupled export duty on iron ore fines to 20% while export
duty on iron ore lumps has been raised by one-third to same level of 20%. Sesa
Goa stock was languishing pending probable uncertainty in the budget but the
quantum estimated in this adverse scenario was 10% and in worst case scenario
15%. So what has come as rude blow has been increase in export duty on iron
ore fines by 300%. More so, given restrictions on exports from Karnataka and
Orissa over last two quarters had already badly hit iron ore exports from India in
Ytd. FY11, merits of iron ore export tax increase to limit iron ore exports seemed
limited.
n Estimate EPS for FY11e would decline marginally from Rs. 46.6 to Rs. 44.8 but
major impact would be seen in FY12e wherein EPS is expected to decline 13%
to Rs. 53.7 from Rs. 61.8 estimated earlier. Impact would be more on EBITDA as
it expected to fall from Rs.493.15bn to Rs. 472.2bn for FY11e and 16% in FY12e
from Rs. 595.25bn to Rs. 491.86bn
Target price lowered by 18% as earning estimates are cut
n We are made no assumption changes other than export duty for our revised estimates.
We maintain our valuation methodology of 6x EV/EBITDA for FY12e as
we believe that iron ore industry macro is still strong wherein iron ore spot prices
are trading at record levels and contract prices beginning next quarter are expected
to jump ~20% to record levels. Also, we believe that most of the negatives
might be in price and there might be few positive triggers in coming months
as discussed in our previous note. We reduce our target price to Rs. 340 from
Rs.416 earlier. But as the stock has already corrected sharply and there is still
30% upside to our fair valuation estimate, we maintain our buy recommendation
on the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SESA GOA
PRICE: RS.261 RECOMMENDATION: BUY
TARGET PRICE: RS.340 FY12E P/E 4.9X; EV/EBITDA 4.6X
Quadruple of export duty to 20% on iron ore fines - big negative
surprise
n Government has quadrupled export duty on iron ore fines to 20% while export
duty on iron ore lumps has been raised by one-third to same level of 20%. Sesa
Goa stock was languishing pending probable uncertainty in the budget but the
quantum estimated in this adverse scenario was 10% and in worst case scenario
15%. So what has come as rude blow has been increase in export duty on iron
ore fines by 300%. More so, given restrictions on exports from Karnataka and
Orissa over last two quarters had already badly hit iron ore exports from India in
Ytd. FY11, merits of iron ore export tax increase to limit iron ore exports seemed
limited.
n Estimate EPS for FY11e would decline marginally from Rs. 46.6 to Rs. 44.8 but
major impact would be seen in FY12e wherein EPS is expected to decline 13%
to Rs. 53.7 from Rs. 61.8 estimated earlier. Impact would be more on EBITDA as
it expected to fall from Rs.493.15bn to Rs. 472.2bn for FY11e and 16% in FY12e
from Rs. 595.25bn to Rs. 491.86bn
Target price lowered by 18% as earning estimates are cut
n We are made no assumption changes other than export duty for our revised estimates.
We maintain our valuation methodology of 6x EV/EBITDA for FY12e as
we believe that iron ore industry macro is still strong wherein iron ore spot prices
are trading at record levels and contract prices beginning next quarter are expected
to jump ~20% to record levels. Also, we believe that most of the negatives
might be in price and there might be few positive triggers in coming months
as discussed in our previous note. We reduce our target price to Rs. 340 from
Rs.416 earlier. But as the stock has already corrected sharply and there is still
30% upside to our fair valuation estimate, we maintain our buy recommendation
on the stock
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