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Iron ore export ban lifted from Karnataka
The Supreme Court today lifted the iron ore export ban in Karnataka with effect
from April 20, 2011, ending a seven month ban on exports. Karnataka produces
~45-50 mt of iron ore annually and used to export 25-30 mtpa prior to the ban.
Due to the export ban, the Y-T-D exports from India until February 2011 have
declined by ~18% Y-o-Y to ~86 mt. Total exports in FY10 stood at 106 mt. The
order is an interim order and the final hearing is likely in first week of May. The
state government has also sought this time to enable it to present its case.
Incrementally positive but factored in
Sesa Goa currently operates with a capacity of 17 mtpa in Goa and 6 mtpa in
Karnataka. However, due to the ongoing ban in Karnataka, Sesa Goa was
restricted to sell in the domestic market, with lower realizations and EBITDA
margins. Removal of export ban will act in favour of Sesa Goa as incremental
production can now be routed to the export market. However, we have already
considered removal of export ban in Karnataka in FY12 and considered 3 mt
volumes.
Outlook and valuations: Maintain ‘REDUCE’
Despite the removal of the export ban, we believe that Sesa Goa will face
volumes issues as the Goa government is not allocating approvals for fresh
capacity. Additionally, the increased cost in the form of higher royalty, freight
and export duty will negate the incremental benefits. We also maintain our view
that H2FY12 will witness lower iron ore prices due to lower demand from China
and increased supply. Also, additional supply from Karnataka can put further
pressure on international iron ore prices. We maintain our ‘Reduce/Sector
Underperformer’ recommendation/rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Iron ore export ban lifted from Karnataka
The Supreme Court today lifted the iron ore export ban in Karnataka with effect
from April 20, 2011, ending a seven month ban on exports. Karnataka produces
~45-50 mt of iron ore annually and used to export 25-30 mtpa prior to the ban.
Due to the export ban, the Y-T-D exports from India until February 2011 have
declined by ~18% Y-o-Y to ~86 mt. Total exports in FY10 stood at 106 mt. The
order is an interim order and the final hearing is likely in first week of May. The
state government has also sought this time to enable it to present its case.
Incrementally positive but factored in
Sesa Goa currently operates with a capacity of 17 mtpa in Goa and 6 mtpa in
Karnataka. However, due to the ongoing ban in Karnataka, Sesa Goa was
restricted to sell in the domestic market, with lower realizations and EBITDA
margins. Removal of export ban will act in favour of Sesa Goa as incremental
production can now be routed to the export market. However, we have already
considered removal of export ban in Karnataka in FY12 and considered 3 mt
volumes.
Outlook and valuations: Maintain ‘REDUCE’
Despite the removal of the export ban, we believe that Sesa Goa will face
volumes issues as the Goa government is not allocating approvals for fresh
capacity. Additionally, the increased cost in the form of higher royalty, freight
and export duty will negate the incremental benefits. We also maintain our view
that H2FY12 will witness lower iron ore prices due to lower demand from China
and increased supply. Also, additional supply from Karnataka can put further
pressure on international iron ore prices. We maintain our ‘Reduce/Sector
Underperformer’ recommendation/rating on the stock.
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