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Riding on strong iron ore prices
Sesa Goa reported strong Q4FY11 results with net sales rising
by 49.8% YoY to Rs 36.2bn on account of robust sales volume
(7.5 MT, up ~40% QoQ) and higher realizations (US$
103/tonne, up by ~53% YoY and 20.5% QoQ). PAT was Rs
14.6bn, proportionately lower on account of increased tax rate
to 34.7% on account of lower volumes from Karnataka. On a
full year basis, the company reported revenue and PAT growth
of 57.1% and 60.6% respectively for FY11.
Volumes surprise positively: Q4 sales volumes surpassed
street expectations and stood at 7.5 MT (6.7 MT on a DMT
basis), flat YoY despite export ban in Karnataka and closure of
mining operations in Orissa. This was on account of higher
inventory build up during Q3 due to extended monsoons in Goa.
Realizations improve in line with spot: Average realizations
on iron ore improved by ~53% YoY and 20.5% QoQ to
~US$103/tonne in line with upward movement in global spot
iron ore prices backed by robust steel production growth.
EBITDA margins improved by 370 bps sequentially.
Acquisition of stake in Cairn: Sesa acquired 10.4% stake in
Cairn India by purchasing 200 mn shares from Petronas at Rs
331/share in addition to making an open offer to buy up to
20% stake at Rs 355/share. The company also acquired the
assets of Bellary Steel for Rs 2.2bn.
Cost push, higher tax rate going forward: Sesa is expected
to witness significant cost push going forward with multiple
headwinds arising from increased export duty (20% on all
grades), higher royalty outgo with increased realizations and
increased railway freight costs. Also, tax rate is expected to be
in the range of 28-29% in FY12E due to EoU tax benefits
getting over.
Valuations: At CMP of Rs 323, the stock trades at 6.9x FY11
EPS of Rs47.5. On EV/EBITDA basis it trades at 3.9x FY11
EV/EBITDA. We expect margins to drop going forward with
multiple cost push but stake acquisition in Cairn to be EPS
accretive. We are in the process of initiating coverage on the
stock and remain positive on the overall prospects of the
company
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Riding on strong iron ore prices
Sesa Goa reported strong Q4FY11 results with net sales rising
by 49.8% YoY to Rs 36.2bn on account of robust sales volume
(7.5 MT, up ~40% QoQ) and higher realizations (US$
103/tonne, up by ~53% YoY and 20.5% QoQ). PAT was Rs
14.6bn, proportionately lower on account of increased tax rate
to 34.7% on account of lower volumes from Karnataka. On a
full year basis, the company reported revenue and PAT growth
of 57.1% and 60.6% respectively for FY11.
Volumes surprise positively: Q4 sales volumes surpassed
street expectations and stood at 7.5 MT (6.7 MT on a DMT
basis), flat YoY despite export ban in Karnataka and closure of
mining operations in Orissa. This was on account of higher
inventory build up during Q3 due to extended monsoons in Goa.
Realizations improve in line with spot: Average realizations
on iron ore improved by ~53% YoY and 20.5% QoQ to
~US$103/tonne in line with upward movement in global spot
iron ore prices backed by robust steel production growth.
EBITDA margins improved by 370 bps sequentially.
Acquisition of stake in Cairn: Sesa acquired 10.4% stake in
Cairn India by purchasing 200 mn shares from Petronas at Rs
331/share in addition to making an open offer to buy up to
20% stake at Rs 355/share. The company also acquired the
assets of Bellary Steel for Rs 2.2bn.
Cost push, higher tax rate going forward: Sesa is expected
to witness significant cost push going forward with multiple
headwinds arising from increased export duty (20% on all
grades), higher royalty outgo with increased realizations and
increased railway freight costs. Also, tax rate is expected to be
in the range of 28-29% in FY12E due to EoU tax benefits
getting over.
Valuations: At CMP of Rs 323, the stock trades at 6.9x FY11
EPS of Rs47.5. On EV/EBITDA basis it trades at 3.9x FY11
EV/EBITDA. We expect margins to drop going forward with
multiple cost push but stake acquisition in Cairn to be EPS
accretive. We are in the process of initiating coverage on the
stock and remain positive on the overall prospects of the
company
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