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4QFY11 results
Sesa Goa’s 4Q net profit grew 21% YoY but missed estimates by 26% mainly
due to higher costs and tax rate. Management is targeting 15-20% volume
growth in FY12, which we believe is achievable. Cost pressures (logistics, port
levies, export duties), though continue to bite. Reserves have been enhanced
by 33mt (net of sales), which is a positive but we suspect that reserve
accretion will taper off now. We maintain estimates for now pending release
of new iron ore price forecasts by our regional team. Till then, maintain SELL.
4Q results impacted by higher costs and tax rate
In 4Q, Sesa registered a 50% YoY growth in revenues driven by 58% higher iron
ore ASPs despite flat volumes. EBITDA rose a lower 41% YoY (9% below
estimates) as costs rose to US$43/t (US$24/t in 4QFY10). The miss at net profit
level was higher at 26% as tax rate rose to 35% from 17% in 9MFY11. The
Karnataka export ban continued till FY11-end and no tax benefits from the EOU
unit there were available. In FY12, the EOU tax benefits are expiring and
management has guided for a tax rate of 28-29%.
15-20% volume growth in FY12; clearances needed for growth post FY12
Sesa is targeting 15-20% volume growth in FY12, which seems achievable given
the removal of the iron ore export ban in Karnataka and the fact that Sesa is
carrying 2mt of iron ore inventories in Karnataka. However, Sesa still needs some
local permits to get cleared before it can start exporting ore from Karnataka.
Beyond FY12, Sesa will need clearances to increase mining output since the
current level of clearances is sufficient only for 23mt (17mt in Goa and 6mt in
Karnataka). There have been multiple delays on this front though management
says that the Karnataka clearances are in an advanced stage.
Commendable reserve accretion but might taper from here on
Sesa has added 33mt of reserves (90%+ in proven category) in FY11 net of the
20mt extracted during the year. In FY10, Sesa had added a higher 43mt of
reserves and we suspect that the quantum of reserve accretion from existing
mines will taper off further in coming years. Management also admitted to the
same in the conference call.
Maintain estimates pending release of new iron ore price forecasts
Management also clarified that if the open offer for Cairn India is subscribed only
to the extent of 10%, then Sesa will not need to buy another 10% from Vedanta
at Rs405/sh since it has already acquired 10% stake from Petronas. We maintain
our EPS estimates pending release of new iron ore price forecasts by our regional
team. Till then, maintain SELL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QFY11 results
Sesa Goa’s 4Q net profit grew 21% YoY but missed estimates by 26% mainly
due to higher costs and tax rate. Management is targeting 15-20% volume
growth in FY12, which we believe is achievable. Cost pressures (logistics, port
levies, export duties), though continue to bite. Reserves have been enhanced
by 33mt (net of sales), which is a positive but we suspect that reserve
accretion will taper off now. We maintain estimates for now pending release
of new iron ore price forecasts by our regional team. Till then, maintain SELL.
4Q results impacted by higher costs and tax rate
In 4Q, Sesa registered a 50% YoY growth in revenues driven by 58% higher iron
ore ASPs despite flat volumes. EBITDA rose a lower 41% YoY (9% below
estimates) as costs rose to US$43/t (US$24/t in 4QFY10). The miss at net profit
level was higher at 26% as tax rate rose to 35% from 17% in 9MFY11. The
Karnataka export ban continued till FY11-end and no tax benefits from the EOU
unit there were available. In FY12, the EOU tax benefits are expiring and
management has guided for a tax rate of 28-29%.
15-20% volume growth in FY12; clearances needed for growth post FY12
Sesa is targeting 15-20% volume growth in FY12, which seems achievable given
the removal of the iron ore export ban in Karnataka and the fact that Sesa is
carrying 2mt of iron ore inventories in Karnataka. However, Sesa still needs some
local permits to get cleared before it can start exporting ore from Karnataka.
Beyond FY12, Sesa will need clearances to increase mining output since the
current level of clearances is sufficient only for 23mt (17mt in Goa and 6mt in
Karnataka). There have been multiple delays on this front though management
says that the Karnataka clearances are in an advanced stage.
Commendable reserve accretion but might taper from here on
Sesa has added 33mt of reserves (90%+ in proven category) in FY11 net of the
20mt extracted during the year. In FY10, Sesa had added a higher 43mt of
reserves and we suspect that the quantum of reserve accretion from existing
mines will taper off further in coming years. Management also admitted to the
same in the conference call.
Maintain estimates pending release of new iron ore price forecasts
Management also clarified that if the open offer for Cairn India is subscribed only
to the extent of 10%, then Sesa will not need to buy another 10% from Vedanta
at Rs405/sh since it has already acquired 10% stake from Petronas. We maintain
our EPS estimates pending release of new iron ore price forecasts by our regional
team. Till then, maintain SELL.
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