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Sesa Goa Ltd (SESA)
N: 1Q12 results – as expected, but little to cheer about
Lower 1Q volumes and EBITDA at INR11.4bn, in-line with
expectations
Management cuts FY12 volume guidance to 15-17% growth
vs. 20-25%; we are at 11% now
Retain N rating (remove V flag) with lower TP at INR320 (from
INR330); no positive triggers yet despite lower valuations
Weak results; in-line with expectations
SESA reported EBITDA of INR11.5bn (down 26% y-o-y and 46% q-o-q), in-line with
our expectation of INR11.6bn. Both volumes and realisations were weak – the former due
to stoppage of operations at Orissa & logistical bottlenecks at Goa and the latter due to
lower mix/grades. We observe that Sesa’s realization discount to grade adjusted blend of
spot/contract prices fell to 39%, compared to an average of 29% during the previous FY.
Interest expenses more than tripled due to the sharp increase in debt raised to finance
18.5% stake in CAIRN India [CAIR, OW, TP INR405]. NPAT at INR8.4bn was
adversely impacted by a higher ETR of 31% (17.8% in 1Q11). (Details in Exhibit1)
Management, during the conference call, mentioned that a further 1.5% stake in CAIRN
will acquired at an estimated cost of cINR11bn. Net cash as on 30 June was INR15bn.
Revised volume guidance at 15-17% growth vs 20-25%; still optimistic in our view
We think that 15% is still an optimistic figure. We build in an additional 3mt from
Karnataka compared to FY11 based on 1Q run-rate of 6mtpa and shortage of iron ore in
Karnataka which makes domestic sales attractive. We expect Goa sales to be flattish given
logistical constraints and the lack of clarity on Goa Mineral Policy on which Sesa’s Goa
expansion is hinged.
Cut volumes and incorporate new HSBC iron ore price forecasts
We cut FY12/FY13e volumes by 9%/17% due to a lowered management guidance and
uncertainty surrounding the iron ore mining sector; FY12 volumes imply a y-o-y growth
of 11%. We also revise iron ore price forecasts from HSBC Metals Quarterly 3Q 2011 –
increase of 13%/27% for FY12/13e vs last published (Exhibit 3). Our FY12 EBITDA
estimates are almost flattish, but FY13 estimates are lower by 7%.
Retain Neutral rating but reduce TP to INR320
We value SESA on FY13e EV/EBITDA of 3.5x. We derive a TP of INR320 and rate
SESA Neutral. Higher (lower)-than-expected volumes and iron ore prices and favourable
(unfavourable) mining policies form the key upside (downside) risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa Ltd (SESA)
N: 1Q12 results – as expected, but little to cheer about
Lower 1Q volumes and EBITDA at INR11.4bn, in-line with
expectations
Management cuts FY12 volume guidance to 15-17% growth
vs. 20-25%; we are at 11% now
Retain N rating (remove V flag) with lower TP at INR320 (from
INR330); no positive triggers yet despite lower valuations
Weak results; in-line with expectations
SESA reported EBITDA of INR11.5bn (down 26% y-o-y and 46% q-o-q), in-line with
our expectation of INR11.6bn. Both volumes and realisations were weak – the former due
to stoppage of operations at Orissa & logistical bottlenecks at Goa and the latter due to
lower mix/grades. We observe that Sesa’s realization discount to grade adjusted blend of
spot/contract prices fell to 39%, compared to an average of 29% during the previous FY.
Interest expenses more than tripled due to the sharp increase in debt raised to finance
18.5% stake in CAIRN India [CAIR, OW, TP INR405]. NPAT at INR8.4bn was
adversely impacted by a higher ETR of 31% (17.8% in 1Q11). (Details in Exhibit1)
Management, during the conference call, mentioned that a further 1.5% stake in CAIRN
will acquired at an estimated cost of cINR11bn. Net cash as on 30 June was INR15bn.
Revised volume guidance at 15-17% growth vs 20-25%; still optimistic in our view
We think that 15% is still an optimistic figure. We build in an additional 3mt from
Karnataka compared to FY11 based on 1Q run-rate of 6mtpa and shortage of iron ore in
Karnataka which makes domestic sales attractive. We expect Goa sales to be flattish given
logistical constraints and the lack of clarity on Goa Mineral Policy on which Sesa’s Goa
expansion is hinged.
Cut volumes and incorporate new HSBC iron ore price forecasts
We cut FY12/FY13e volumes by 9%/17% due to a lowered management guidance and
uncertainty surrounding the iron ore mining sector; FY12 volumes imply a y-o-y growth
of 11%. We also revise iron ore price forecasts from HSBC Metals Quarterly 3Q 2011 –
increase of 13%/27% for FY12/13e vs last published (Exhibit 3). Our FY12 EBITDA
estimates are almost flattish, but FY13 estimates are lower by 7%.
Retain Neutral rating but reduce TP to INR320
We value SESA on FY13e EV/EBITDA of 3.5x. We derive a TP of INR320 and rate
SESA Neutral. Higher (lower)-than-expected volumes and iron ore prices and favourable
(unfavourable) mining policies form the key upside (downside) risks.
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