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UBS Investment Research
Sesa Goa
Q3FY11 results above UBS estimates
„ Q3FY11 EBITDA/PAT beat estimates on higher top line numbers
Q3FY11 sales of Rs22.4b (+20% YoY, +147% QoQ) beat our estimates of
Rs20.3b on higher iron ore volumes and realizations. EBITDA of Rs12.2b (+20%
YoY, +317% QoQ) and PAT of Rs10.7b (+28% YoY, +177% QoQ) were higher
than our estimates of Rs10.7b and Rs9.4b respectively. EBITDA margin at 54%
was inline with our expectations of 53%.
„ Iron ore realisations and volumes higher than UBS-e
Iron ore volumes of 5.4mt (-21% YoY, +167% QoQ) was higher than UBS-e of
5mt and ASP was Rs3882/t (+53% YoY, 10% QoQ) vs. UBS-e of Rs3645/t. Iron
ore sales was Rs20.9b (+21% YoY, 193% QoQ) vs. our Rs18.2b. Pig iron sales
was Rs1.6b (+14% YoY, -20% QoQ) while Met Coke sales was Rs1.3b (+16%
YoY, -7% QoQ). Sesa’s cash & cash equivalents was Rs82b at the end of 3QFY11.
„ Seasonality / potential +ve from K’taka export ban are near term catalysts
Spot iron ore prices (58% Fe grade China CFR) have risen 10% MoM to US$159/t.
Sesa is a direct beneficiary of rising spot iron ore prices and we expect short term
iron ore prices to remain strong due to 1) Chinese seasonal restocking in Q4 & 2)
increase in steel production rates. Supreme Court of India has observed that
Karnataka iron ore export ban cannot be indefinite and has asked the state to notify
new rules for exports. Positive actions on export ban will be a key catalyst.
„ Valuation: Maintain Buy rating and price target of Rs410
We increase Sesa’s PT to Rs410 (Prev. Rs400) factoring in the inc. in UBS’ Cairn
India PT to Rs375 (Prev. Rs355). We value Sesa at 4.5x Dec’12E EBITDA and
20% stake in Cairn India at PT of Rs375/sh and apply 20% holding co. discount.
Q Sesa Goa
Sesa Goa is a 51%-owned subsidiary of the Vedanta Group and was acquired
from Mitsui & Co., in 2007. Sesa is the largest listed Indian exporter of iron ore,
selling 12.3m tonnes in FY08 primarily to steel-making companies in China,
Japan and Europe. Over the past decade, Sesa has diversified into the
manufacture of pig iron and metallurgical coke via its 88.2%-owned subsidiary,
Sesa Industries Ltd.
Q Statement of Risk
Sesa, like all mining companies, is subject to exchange rate risk, and to price
fluctuations of its main products. Investors should be aware mining stocks
including Sesa are inherently volatile and extremely dependent on global
underlying demand and supplier behaviour. A weakening in global production
could place our pricing forecast, earnings and valuations under pressure.
Investment in Sesa is subject to China risk, given the majority of forecasted iron
ore growth is from China
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Sesa Goa
Q3FY11 results above UBS estimates
„ Q3FY11 EBITDA/PAT beat estimates on higher top line numbers
Q3FY11 sales of Rs22.4b (+20% YoY, +147% QoQ) beat our estimates of
Rs20.3b on higher iron ore volumes and realizations. EBITDA of Rs12.2b (+20%
YoY, +317% QoQ) and PAT of Rs10.7b (+28% YoY, +177% QoQ) were higher
than our estimates of Rs10.7b and Rs9.4b respectively. EBITDA margin at 54%
was inline with our expectations of 53%.
„ Iron ore realisations and volumes higher than UBS-e
Iron ore volumes of 5.4mt (-21% YoY, +167% QoQ) was higher than UBS-e of
5mt and ASP was Rs3882/t (+53% YoY, 10% QoQ) vs. UBS-e of Rs3645/t. Iron
ore sales was Rs20.9b (+21% YoY, 193% QoQ) vs. our Rs18.2b. Pig iron sales
was Rs1.6b (+14% YoY, -20% QoQ) while Met Coke sales was Rs1.3b (+16%
YoY, -7% QoQ). Sesa’s cash & cash equivalents was Rs82b at the end of 3QFY11.
„ Seasonality / potential +ve from K’taka export ban are near term catalysts
Spot iron ore prices (58% Fe grade China CFR) have risen 10% MoM to US$159/t.
Sesa is a direct beneficiary of rising spot iron ore prices and we expect short term
iron ore prices to remain strong due to 1) Chinese seasonal restocking in Q4 & 2)
increase in steel production rates. Supreme Court of India has observed that
Karnataka iron ore export ban cannot be indefinite and has asked the state to notify
new rules for exports. Positive actions on export ban will be a key catalyst.
„ Valuation: Maintain Buy rating and price target of Rs410
We increase Sesa’s PT to Rs410 (Prev. Rs400) factoring in the inc. in UBS’ Cairn
India PT to Rs375 (Prev. Rs355). We value Sesa at 4.5x Dec’12E EBITDA and
20% stake in Cairn India at PT of Rs375/sh and apply 20% holding co. discount.
Q Sesa Goa
Sesa Goa is a 51%-owned subsidiary of the Vedanta Group and was acquired
from Mitsui & Co., in 2007. Sesa is the largest listed Indian exporter of iron ore,
selling 12.3m tonnes in FY08 primarily to steel-making companies in China,
Japan and Europe. Over the past decade, Sesa has diversified into the
manufacture of pig iron and metallurgical coke via its 88.2%-owned subsidiary,
Sesa Industries Ltd.
Q Statement of Risk
Sesa, like all mining companies, is subject to exchange rate risk, and to price
fluctuations of its main products. Investors should be aware mining stocks
including Sesa are inherently volatile and extremely dependent on global
underlying demand and supplier behaviour. A weakening in global production
could place our pricing forecast, earnings and valuations under pressure.
Investment in Sesa is subject to China risk, given the majority of forecasted iron
ore growth is from China
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