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Sesa Goa Limited — Export ban removal a positive, but headwinds persist
Country Overview
Export ban removal a relief, but maintain Underperform
The Supreme Court’s interim order lifting Karnataka export ban w.e.f. 20th April
eases volume concerns to some extent. However, we anticipated the export ban
removal and were already factoring in 4.2mt of volumes from Karnataka in
FY12e. We expect spot iron ore prices to ease due to improved supply from India
led by export ban removal. We remain cautious as we continue to see vol.
headwinds as Goa mine approvals are on hold & as shipments remain
constrained by Goa transport restrictions & permit delays. Also potential mining
tax remains a key risk.
Supreme Court issues interim stay order on export ban
The final order lifting the ban is expected to be issued in the first week of May
after Supreme Court reviews the steps taken by Karnataka Govt. to curb illegal
mining. Karnataka exports ~20mt of iron ore annually (~20% of India’s exports) &
accounts for 20% of Sesa’s FY12E volumes. Sesa has ~2mt of inventory at its
Karnataka mines. We expect exports to pick up on export ban removal, though
stringent measures to curb illegal mining/exports may hinder pace of shipments.
Structural headwinds to volumes to persist
Sesa has approvals to produce up to 23mt (Goa 17mt, Karnataka 6mt) of iron ore
based on current approvals and needs further approvals to increase output
further. However, in Goa, mine approvals are on hold till the mining policy is
approved. Also Goa Govt. has restricted road transport timings to 12 hrs/day vs.
24hrs/day earlier. We forecast vols of 19.5mn tons in FY11 and 21mt in FY12.
Lowering FY12-13e EPS & PO on higher export tax
We raise FY11e EPS by 8% as we MTM 4Q spot prices. We cut our FY12-13e by
19-20% as we factor recent export tax hike to 20% (earlier 5% on fines). We have
not included proposed oil asset deal in our est. as approval is pending. Our PO of
Rs275 is set at NPV (0.85x NPV earlier) due to better clarity on Karnataka ban.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa Limited — Export ban removal a positive, but headwinds persist
Country Overview
Export ban removal a relief, but maintain Underperform
The Supreme Court’s interim order lifting Karnataka export ban w.e.f. 20th April
eases volume concerns to some extent. However, we anticipated the export ban
removal and were already factoring in 4.2mt of volumes from Karnataka in
FY12e. We expect spot iron ore prices to ease due to improved supply from India
led by export ban removal. We remain cautious as we continue to see vol.
headwinds as Goa mine approvals are on hold & as shipments remain
constrained by Goa transport restrictions & permit delays. Also potential mining
tax remains a key risk.
Supreme Court issues interim stay order on export ban
The final order lifting the ban is expected to be issued in the first week of May
after Supreme Court reviews the steps taken by Karnataka Govt. to curb illegal
mining. Karnataka exports ~20mt of iron ore annually (~20% of India’s exports) &
accounts for 20% of Sesa’s FY12E volumes. Sesa has ~2mt of inventory at its
Karnataka mines. We expect exports to pick up on export ban removal, though
stringent measures to curb illegal mining/exports may hinder pace of shipments.
Structural headwinds to volumes to persist
Sesa has approvals to produce up to 23mt (Goa 17mt, Karnataka 6mt) of iron ore
based on current approvals and needs further approvals to increase output
further. However, in Goa, mine approvals are on hold till the mining policy is
approved. Also Goa Govt. has restricted road transport timings to 12 hrs/day vs.
24hrs/day earlier. We forecast vols of 19.5mn tons in FY11 and 21mt in FY12.
Lowering FY12-13e EPS & PO on higher export tax
We raise FY11e EPS by 8% as we MTM 4Q spot prices. We cut our FY12-13e by
19-20% as we factor recent export tax hike to 20% (earlier 5% on fines). We have
not included proposed oil asset deal in our est. as approval is pending. Our PO of
Rs275 is set at NPV (0.85x NPV earlier) due to better clarity on Karnataka ban.
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