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Sesa Goa Limited. — Raising iron ore forecasts,
remain cautious
Country Overview
Raising est. on higher iron ore prices, remain cautious
Our Bulks Strategist has raised spot CFR est. for FY12-13e by 28-31%. (Bulk
Strategist, 07 June 2011). We raise FY12-13e EPS by 19-20% as we factor in
higher prices & freight cost hikes. Though we are positive on iron ore, we believe
iron ore prices have peaked & should correct near term. We remain cautious due
to structural volume & regulatory headwinds, low mine life, & uncertainty related
to proposed oil deal. We see risks to our medium term volumes forecasts & NPV.
New price objective of Rs280 (up from Rs275) is set at 0.9x our NPV estimate
(1.0x NPV estimate previously) due to above risks and overhang which implies
6.2x FY12e EPS broadly inline with global average.
FY12E EPS of Rs44.9 and FY13E EPS of Rs45.9
We forecast ASP of Rs5007/t in FY12 & Rs4860/t in FY13. We expect volumes of
22.4mt (+10%YoY) in FY12 & 24.8mt in FY13 (11%%YoY). We est. 1% change in
spot impacts EPS by 1.1%, all else being equal, while 1% change in vol. impacts
EPS by 0.9%, all else being equal.
Positive fundamentals; expect correction near term
Our global team has cut seaborne supply forecasts by ~8% over next 3 yrs. We
believe higher need for high cost low grade Chinese output to balance the market
should support higher iron ore prices in the medium term. In the near term, we
expect iron ore prices to correct due to sharp recovery in exports from Aust. and
Brazil post monsoon, higher Chinese domestic ore output and softer Chinese
demand in 2H. Our spot CFR est. is US$173/t in FY12e & US$168/t in FY13e.
Continued volume headwinds; rising logistics costs
Export ban was lifted in April, but State Govt. has not yet issued any permits.
Permit issuance may start over next few weeks, but exports may improve only
post monsoon. Goa mine approvals remain on hold till mining policy is finalized.
This could take quite some time. Rail freight was hiked by Rs100/t in March
(Rs600/t YTD) and busy season charges of 7% (~US$3/t) will be levied from April
- June and Oct - Mar
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa Limited. — Raising iron ore forecasts,
remain cautious
Country Overview
Raising est. on higher iron ore prices, remain cautious
Our Bulks Strategist has raised spot CFR est. for FY12-13e by 28-31%. (Bulk
Strategist, 07 June 2011). We raise FY12-13e EPS by 19-20% as we factor in
higher prices & freight cost hikes. Though we are positive on iron ore, we believe
iron ore prices have peaked & should correct near term. We remain cautious due
to structural volume & regulatory headwinds, low mine life, & uncertainty related
to proposed oil deal. We see risks to our medium term volumes forecasts & NPV.
New price objective of Rs280 (up from Rs275) is set at 0.9x our NPV estimate
(1.0x NPV estimate previously) due to above risks and overhang which implies
6.2x FY12e EPS broadly inline with global average.
FY12E EPS of Rs44.9 and FY13E EPS of Rs45.9
We forecast ASP of Rs5007/t in FY12 & Rs4860/t in FY13. We expect volumes of
22.4mt (+10%YoY) in FY12 & 24.8mt in FY13 (11%%YoY). We est. 1% change in
spot impacts EPS by 1.1%, all else being equal, while 1% change in vol. impacts
EPS by 0.9%, all else being equal.
Positive fundamentals; expect correction near term
Our global team has cut seaborne supply forecasts by ~8% over next 3 yrs. We
believe higher need for high cost low grade Chinese output to balance the market
should support higher iron ore prices in the medium term. In the near term, we
expect iron ore prices to correct due to sharp recovery in exports from Aust. and
Brazil post monsoon, higher Chinese domestic ore output and softer Chinese
demand in 2H. Our spot CFR est. is US$173/t in FY12e & US$168/t in FY13e.
Continued volume headwinds; rising logistics costs
Export ban was lifted in April, but State Govt. has not yet issued any permits.
Permit issuance may start over next few weeks, but exports may improve only
post monsoon. Goa mine approvals remain on hold till mining policy is finalized.
This could take quite some time. Rail freight was hiked by Rs100/t in March
(Rs600/t YTD) and busy season charges of 7% (~US$3/t) will be levied from April
- June and Oct - Mar
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