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India Equity Research Reports, IPO and Stock News
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… the tough get going
§ Karnataka export ban removal provides visibility on FY12 volumes
§ Cairn-Vedanta deal – One step closer to closure
§ Rising Indian exports to add to pressure on iron ore prices
§ Weak iron ore outlook counter-balanced by strong oil prices
Karnataka export ban removed
The Indian Supreme Court has allowed
iron ore exports from Karnataka to resume
from 20 April 2011 after being banned
since July 2010. This is positive for Sesa
as the export ban had reduced sales
volume from its Karnataka operations,
which otherwise accounted for 18-20% of
FY09-FY10 volumes. Our estimates
include sales volume of 2.5m tonnes from
Karnataka for FY12 in comparison to a
high of 3.7m tonnes achieved by Sesa in
FY10. We believe there could be upside
of 0.5m-0.8m tonnes to our FY12 sales
volume assumption if Sesa manages to
achieve a production rate similar to FY10 in Karnataka.
Cairn-Vedanta deal – One step closer to closure
Vedanta Resources PLC (VED LN, Not rated) has received Securities
and Exchange Board of India (SEBI) approval to acquire 20% in Cairn
India (CAIR IN, BUY, CP: INR365.10) through an open offer by Sesa.
The transaction is yet to be approved by the Indian Cabinet. With this, the
overhang on Sesa regarding the deal’s uncertainty is reduced and the
company is a step closer to launching its open offer for Cairn.
Continue to be cautious on iron ore prices
Spot iron ore prices have declined 9% after peaking at USD198/tonne
(CFR) in mid-February 2011. With the removal of the Karnataka export
ban, we expect Indian iron ore exports to rise from April onward, along
with a recovery of exports from Australia and Brazil, with improving
weather. 2HCY11 is likely to see further iron ore supply additions with
commissioning of new projects in Australia by FMG (FMG AU, Not rated)
and Gindalbie (GBG AU, Not rated). Thus, we expect iron ore prices to
continue their long-term downtrend for the remainder of the year.
Valuation – Still a HOLD
We maintain our HOLD rating as we continue to be negative on iron ore
prices, which are partially counter-balanced by strength in crude oil
prices. Our SoTP-based INR319.00 TP for Sesa values the core
business at INR369/share and values its stake in Cairn India at
INR114/share (using 20% holding company discount), with outflow for
Cairn’s stake acquisition pegged at about INR164/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
… the tough get going
§ Karnataka export ban removal provides visibility on FY12 volumes
§ Cairn-Vedanta deal – One step closer to closure
§ Rising Indian exports to add to pressure on iron ore prices
§ Weak iron ore outlook counter-balanced by strong oil prices
Karnataka export ban removed
The Indian Supreme Court has allowed
iron ore exports from Karnataka to resume
from 20 April 2011 after being banned
since July 2010. This is positive for Sesa
as the export ban had reduced sales
volume from its Karnataka operations,
which otherwise accounted for 18-20% of
FY09-FY10 volumes. Our estimates
include sales volume of 2.5m tonnes from
Karnataka for FY12 in comparison to a
high of 3.7m tonnes achieved by Sesa in
FY10. We believe there could be upside
of 0.5m-0.8m tonnes to our FY12 sales
volume assumption if Sesa manages to
achieve a production rate similar to FY10 in Karnataka.
Cairn-Vedanta deal – One step closer to closure
Vedanta Resources PLC (VED LN, Not rated) has received Securities
and Exchange Board of India (SEBI) approval to acquire 20% in Cairn
India (CAIR IN, BUY, CP: INR365.10) through an open offer by Sesa.
The transaction is yet to be approved by the Indian Cabinet. With this, the
overhang on Sesa regarding the deal’s uncertainty is reduced and the
company is a step closer to launching its open offer for Cairn.
Continue to be cautious on iron ore prices
Spot iron ore prices have declined 9% after peaking at USD198/tonne
(CFR) in mid-February 2011. With the removal of the Karnataka export
ban, we expect Indian iron ore exports to rise from April onward, along
with a recovery of exports from Australia and Brazil, with improving
weather. 2HCY11 is likely to see further iron ore supply additions with
commissioning of new projects in Australia by FMG (FMG AU, Not rated)
and Gindalbie (GBG AU, Not rated). Thus, we expect iron ore prices to
continue their long-term downtrend for the remainder of the year.
Valuation – Still a HOLD
We maintain our HOLD rating as we continue to be negative on iron ore
prices, which are partially counter-balanced by strength in crude oil
prices. Our SoTP-based INR319.00 TP for Sesa values the core
business at INR369/share and values its stake in Cairn India at
INR114/share (using 20% holding company discount), with outflow for
Cairn’s stake acquisition pegged at about INR164/share.
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