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Q4FY11 EBITDA 22% above our estimates
Sesa Goa (Sesa) reported Q4FY11 revenues of INR 36.2 bn, up 61% Q-o-Q and
50% Y-o-Y. This was ~26% above our estimates, primarily due to higher-thanexpected
volumes and greater realisations. Volumes stood at 7.5 wmt (our
estimate: 7.2 wmt) and average blended realisations came in at USD 104/t
against our assumption of USD 91/t. EBITDA, at INR 21.2 bn, tracked the growth
in revenue, and was ~22% higher than our estimate. However, net profit, at INR
14.6 bn, was in line with our estimate, primarily on account of higher tax rate
(domestic sales from Karnataka did not yield EOU benefits). Current cash on
books is at ~INR 40.8 bn after considering Cairn stake purchase from Petronas.
Iron ore prices to remain firm; volume growth guided at 15-20%
As per the management, iron ore prices are expected to remain firm for the next
2-3 years on account of higher marginal cost in China as well as the oligopoly
situation in the iron ore market by the big miners. Management has guided to
realisations remaining above USD 100/t in FY12. Volume growth guidance stands
at ~15-20% in FY12, which will primarily be through Karnataka volume ramp up.
Cost likely to remain at current levels
The recent quarter has seen cost push due to the increased export duty on
lumps and fines, higher ad-volarem royalty rates and increased freight.
Assuming iron ore prices remain range bound, management expects cost to
remain at Q4FY11 levels.
Focus to shift to steel capacity building
The management has started talks with the Orissa government to start work on
the Orissa steel plant MOU with the Vedanta group. The company has also
acquired assets of Bellary Iron and Steel (Bellary) for a 1.5-2.0 mtpa steel plant.
The company also proposes to setup a 1.5 mtpa steel plant in Jharkhand where
it has iron ore mine (prospecting licence) with potential resources of ~50 mt.
Outlook and valuations: Issues persist; maintain ‘REDUCE’
We see iron ore prices having peaked and expect downward pressure going
forward. Volume growth issues persist with no timely clearances for the Goa
operations and delays in lifting of ban in Karnataka. We see ineffective utilisation
of cash in the Cairn India transaction. We currently have ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock with fair value of INR
275/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q4FY11 EBITDA 22% above our estimates
Sesa Goa (Sesa) reported Q4FY11 revenues of INR 36.2 bn, up 61% Q-o-Q and
50% Y-o-Y. This was ~26% above our estimates, primarily due to higher-thanexpected
volumes and greater realisations. Volumes stood at 7.5 wmt (our
estimate: 7.2 wmt) and average blended realisations came in at USD 104/t
against our assumption of USD 91/t. EBITDA, at INR 21.2 bn, tracked the growth
in revenue, and was ~22% higher than our estimate. However, net profit, at INR
14.6 bn, was in line with our estimate, primarily on account of higher tax rate
(domestic sales from Karnataka did not yield EOU benefits). Current cash on
books is at ~INR 40.8 bn after considering Cairn stake purchase from Petronas.
Iron ore prices to remain firm; volume growth guided at 15-20%
As per the management, iron ore prices are expected to remain firm for the next
2-3 years on account of higher marginal cost in China as well as the oligopoly
situation in the iron ore market by the big miners. Management has guided to
realisations remaining above USD 100/t in FY12. Volume growth guidance stands
at ~15-20% in FY12, which will primarily be through Karnataka volume ramp up.
Cost likely to remain at current levels
The recent quarter has seen cost push due to the increased export duty on
lumps and fines, higher ad-volarem royalty rates and increased freight.
Assuming iron ore prices remain range bound, management expects cost to
remain at Q4FY11 levels.
Focus to shift to steel capacity building
The management has started talks with the Orissa government to start work on
the Orissa steel plant MOU with the Vedanta group. The company has also
acquired assets of Bellary Iron and Steel (Bellary) for a 1.5-2.0 mtpa steel plant.
The company also proposes to setup a 1.5 mtpa steel plant in Jharkhand where
it has iron ore mine (prospecting licence) with potential resources of ~50 mt.
Outlook and valuations: Issues persist; maintain ‘REDUCE’
We see iron ore prices having peaked and expect downward pressure going
forward. Volume growth issues persist with no timely clearances for the Goa
operations and delays in lifting of ban in Karnataka. We see ineffective utilisation
of cash in the Cairn India transaction. We currently have ‘REDUCE/Sector
Underperformer’ recommendation/rating on the stock with fair value of INR
275/share.
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