Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa (SESA)
Metals & Mining
Some respite. The Supreme Court has lifted the ban on iron ore exports from
Karnataka allowing miners to export iron ore from the state beginning April 20. This
comes after the Karnataka State Government had banned iron ore exports from the
state in July 2010. Karnataka mine accounted for ~20% of export volumes for Sesa in
FY2010. Sesa has EC clearance for mining iron ore upto 6mpta. Our estimates and
target price already build in iron ore shipments from Karnataka mines. We find
valuations expensive even after our aggressive iron ore price assumptions. REDUCE.
Ban on iron ore exports over-turned
The Supreme Court has lifted the ban on iron ore exports from Karnataka allowing miners to
export iron ore from the state beginning April 20. This comes after the Karnataka State
Government on July 29, 2010 had banned iron ore exports from the state.
Exports from Karnataka were ~3.4mn tonnes or 17% of volumes in FY2010 for Sesa Goa. These
volumes have declined significantly in FY2011 after imposition of iron ore ban. Sesa directed some
of the iron ore shipments to the domestic market at a US$35-40/ tonne discount to FOB export
prices. A recent increase in freight and export duty has in any case reduced profitability of iron
exports significantly. We estimate that cost from Karnataka mine has increased to ~US$105/ tonne
(including export duty) from less than US$60/ tonne just a year ago.
EC clearance of up to 6mtpa for Sesa’s Karnataka mine
Sesa has environment clearance to mine up to 6 mtpa from the Karnataka mine, which it expects
to increase to 10 mtpa by end-FY2012E. The company is investing aggressively in logistics as part
of the planned expansion in Karnataka. Sesa recently commissioned additional railway siding and
is setting up a private road corridor up to Karnataka highway, which it expects to complete by
4QFY12.
Positive for sure, but it’s all in the price
The lifting of the ban provides visibility on volume estimates, a positive. However, our iron ore
shipments of 21.3 mn tonnes in FY2012E already build in volumes from Karnataka mines. The
following concerns will continue to weigh on Sesa’s stock performance and profitability
(1) potential changes in MMDR Act that may call for sharing 26% of profit generated with the
population displaced from the mine, (2) unrelated and value destructive move to acquire 20% in
Cairn India and (3) limited visibility on EC clearance for expansion of Goa mines. Our target price
of Rs275 is based on (1) aggressive long-term iron ore price assumption US$85/ tonne and (2) 80
mn tonnes accretion to the iron ore reserves. Maintain REDUCE with a target price of Rs275.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa (SESA)
Metals & Mining
Some respite. The Supreme Court has lifted the ban on iron ore exports from
Karnataka allowing miners to export iron ore from the state beginning April 20. This
comes after the Karnataka State Government had banned iron ore exports from the
state in July 2010. Karnataka mine accounted for ~20% of export volumes for Sesa in
FY2010. Sesa has EC clearance for mining iron ore upto 6mpta. Our estimates and
target price already build in iron ore shipments from Karnataka mines. We find
valuations expensive even after our aggressive iron ore price assumptions. REDUCE.
Ban on iron ore exports over-turned
The Supreme Court has lifted the ban on iron ore exports from Karnataka allowing miners to
export iron ore from the state beginning April 20. This comes after the Karnataka State
Government on July 29, 2010 had banned iron ore exports from the state.
Exports from Karnataka were ~3.4mn tonnes or 17% of volumes in FY2010 for Sesa Goa. These
volumes have declined significantly in FY2011 after imposition of iron ore ban. Sesa directed some
of the iron ore shipments to the domestic market at a US$35-40/ tonne discount to FOB export
prices. A recent increase in freight and export duty has in any case reduced profitability of iron
exports significantly. We estimate that cost from Karnataka mine has increased to ~US$105/ tonne
(including export duty) from less than US$60/ tonne just a year ago.
EC clearance of up to 6mtpa for Sesa’s Karnataka mine
Sesa has environment clearance to mine up to 6 mtpa from the Karnataka mine, which it expects
to increase to 10 mtpa by end-FY2012E. The company is investing aggressively in logistics as part
of the planned expansion in Karnataka. Sesa recently commissioned additional railway siding and
is setting up a private road corridor up to Karnataka highway, which it expects to complete by
4QFY12.
Positive for sure, but it’s all in the price
The lifting of the ban provides visibility on volume estimates, a positive. However, our iron ore
shipments of 21.3 mn tonnes in FY2012E already build in volumes from Karnataka mines. The
following concerns will continue to weigh on Sesa’s stock performance and profitability
(1) potential changes in MMDR Act that may call for sharing 26% of profit generated with the
population displaced from the mine, (2) unrelated and value destructive move to acquire 20% in
Cairn India and (3) limited visibility on EC clearance for expansion of Goa mines. Our target price
of Rs275 is based on (1) aggressive long-term iron ore price assumption US$85/ tonne and (2) 80
mn tonnes accretion to the iron ore reserves. Maintain REDUCE with a target price of Rs275.
No comments:
Post a Comment