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A d v e r s e i m p a c t o f m i n in g b a n i n K a r n a t a k a …
The Supreme Court on July 30 had imposed a mining ban in the Bellary
region of Karnataka citing extensive damage to the environment due to
illegal mining of resources. On Friday, the Supreme Court extended this
mining ban in the areas of Tumkur and Chitradurga districts of Karnataka,
based on the report by the Central Empowered Committee (CEC), which
cited that environment has been largely impacted due to mining activity
in these regions. Combined mining from both these regions has an output
of ~9-10 million tonnes (MT) and it contributed to ~a quarter of the total
states output. Sesa Goa has one mine (A Narrain mine sales stood around
~1 MT in Q1FY12) operation in Chitradurga, which after the application of
this ban ceased to operate. This is negative for Sesa Goa as this mine
produced higher grade ore as compared to its Goa mines.
ƒ Reduction in our volume assumption
The management was optimistic of starting and ramping up operations
from Karnataka in the current fiscal. However, in light of the current
events we do not expect any contribution from Karnataka for FY12. We
have revised our sales volume estimates down by ~21% to 15.1 MT in
FY12E and ~16% dip in FY13E to 16.8 MT.
V a l u a t i o n
At the CMP of | 213, the stock is trading at 6.5x and 5.6x its FY12E and
FY13E EV/EBITDA, respectively. We believe that this ban will continue
for at least the next six months. Hence, volume growth will remain
under pressure. Another concern for the stock is the overhang of
implementation of new mining bill that will have a negative impact on
the profitability of the company to a larger extent. Hence, we continue
to value the stock on an SOTP basis, valuing the core business at 4x
EV/EBITDA multiple. We have assigned a 30% holding company
discount to investment value at the current market price in Cairn India,
thus arriving at a target price of | 221 and assigned a HOLD rating to it.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A d v e r s e i m p a c t o f m i n in g b a n i n K a r n a t a k a …
The Supreme Court on July 30 had imposed a mining ban in the Bellary
region of Karnataka citing extensive damage to the environment due to
illegal mining of resources. On Friday, the Supreme Court extended this
mining ban in the areas of Tumkur and Chitradurga districts of Karnataka,
based on the report by the Central Empowered Committee (CEC), which
cited that environment has been largely impacted due to mining activity
in these regions. Combined mining from both these regions has an output
of ~9-10 million tonnes (MT) and it contributed to ~a quarter of the total
states output. Sesa Goa has one mine (A Narrain mine sales stood around
~1 MT in Q1FY12) operation in Chitradurga, which after the application of
this ban ceased to operate. This is negative for Sesa Goa as this mine
produced higher grade ore as compared to its Goa mines.
ƒ Reduction in our volume assumption
The management was optimistic of starting and ramping up operations
from Karnataka in the current fiscal. However, in light of the current
events we do not expect any contribution from Karnataka for FY12. We
have revised our sales volume estimates down by ~21% to 15.1 MT in
FY12E and ~16% dip in FY13E to 16.8 MT.
V a l u a t i o n
At the CMP of | 213, the stock is trading at 6.5x and 5.6x its FY12E and
FY13E EV/EBITDA, respectively. We believe that this ban will continue
for at least the next six months. Hence, volume growth will remain
under pressure. Another concern for the stock is the overhang of
implementation of new mining bill that will have a negative impact on
the profitability of the company to a larger extent. Hence, we continue
to value the stock on an SOTP basis, valuing the core business at 4x
EV/EBITDA multiple. We have assigned a 30% holding company
discount to investment value at the current market price in Cairn India,
thus arriving at a target price of | 221 and assigned a HOLD rating to it.
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