Sesa Goa
Catalysts Starting to Work;
Upgrade to OW from EW
What's Changed
Rating Equal-weight to Overweight
Price Target Rs154.00 to Rs240.00
Market seems to be appreciating the value that
Sterlite brings to Sesa post the planned merger,
though this is yet to be reflected fully. Solid zinc
assets, improving Balco and power divisions, and
possibility of minority consolidation are the key
benefits from Sterlite (we were positive) for Sesa.
The recent uptick in Sesa stock (up 55% from its Aug-13
bottom, though down 5.5% YTD) largely reflects the
gains from the merger of Sterlite, we feel.
Key themes for our positive stance on erstwhile
Sterlite that are playing out: 1) Restructuring and
possible gains – This is close to being completed and
the full benefits should be visible over six months. 2)
Increased possibility of minority consolidation (can add
Rs10/share to fair value of Sesa-Sterlite). 3) Continued
improvement in power division as coal crunch eases.
Keys that make us even more optimistic on and
prompt further upgrade of our fair value estimate of
Sterlite assets and that contribute to our upgrade on
Sesa: 1) improving conversion cost and upcoming
expansion at Balco, which is being aided by INR
depreciation; 2) higher visibility on India zinc expansion.
Why we feel Sesa assets look better than before:
Post restructuring, Sesa’s fastest-growing divisions will
be from the erstwhile Sterlite. Apart from these, Sesa is
getting a mix of good (high return/high cash flow oil and
gas division) and bad (high debt VAL, which has raw
materials issues). On Sesa, we had been EW due to nil
output of iron ore owing to mining ban. However,
Karnataka now seems set to start mining in the next two
to three months. Also, hearings for the Goa mining case
have started and government is considering a reduction
in the export tax on iron ore
��
Catalysts Starting to Work;
Upgrade to OW from EW
What's Changed
Rating Equal-weight to Overweight
Price Target Rs154.00 to Rs240.00
Market seems to be appreciating the value that
Sterlite brings to Sesa post the planned merger,
though this is yet to be reflected fully. Solid zinc
assets, improving Balco and power divisions, and
possibility of minority consolidation are the key
benefits from Sterlite (we were positive) for Sesa.
The recent uptick in Sesa stock (up 55% from its Aug-13
bottom, though down 5.5% YTD) largely reflects the
gains from the merger of Sterlite, we feel.
Key themes for our positive stance on erstwhile
Sterlite that are playing out: 1) Restructuring and
possible gains – This is close to being completed and
the full benefits should be visible over six months. 2)
Increased possibility of minority consolidation (can add
Rs10/share to fair value of Sesa-Sterlite). 3) Continued
improvement in power division as coal crunch eases.
Keys that make us even more optimistic on and
prompt further upgrade of our fair value estimate of
Sterlite assets and that contribute to our upgrade on
Sesa: 1) improving conversion cost and upcoming
expansion at Balco, which is being aided by INR
depreciation; 2) higher visibility on India zinc expansion.
Why we feel Sesa assets look better than before:
Post restructuring, Sesa’s fastest-growing divisions will
be from the erstwhile Sterlite. Apart from these, Sesa is
getting a mix of good (high return/high cash flow oil and
gas division) and bad (high debt VAL, which has raw
materials issues). On Sesa, we had been EW due to nil
output of iron ore owing to mining ban. However,
Karnataka now seems set to start mining in the next two
to three months. Also, hearings for the Goa mining case
have started and government is considering a reduction
in the export tax on iron ore
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