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Sesa Goa reported muted 1QFY12 earnings with volumes of 4.3mt and average realization of
US$89/t. EBITDA came in at Rs11.5bn (-21% yoy and -46% qoq) versus our estimate of
Rs12.9bn. While 2Q should remain weak with volumes impacted by monsoon, earnings should
be strong in 2HFY12. Maintain Buy.
Net revenues were at Rs20.9bn (-13% yoy and -42% qoq) lower than our estimate of
Rs23.9bn. Weak iron ore sales volumes at 4.3mt DMT (-12% yoy and -36% qoq) was
expected due to logistical issues in both Karnataka and Goa as well as early onset of
monsoon. However, average realizations too declined to US$89/t versus US$104/t in 4QFY11
due to higher sales in the domestic market.
Export duty increased expectedly to US$16/t from US$11/t in 4QFY11, due to rise in export
duty of fines from 5% to 20% in end-February.
The lower top-line led to an EBITDA which came in at Rs11.5bn (-21% yoy and -46% qoq)
versus our estimate of Rs12.9bn.
Other income was at Rs1.5bn declining only 12% qoq despite significantly lower cash balance
due to 18.5% investment in Cairn India.
Net profit was at Rs8.4bn (-36% yoy and -42% qoq) versus our estimate of Rs9.3bn.
We expect 2QFY12 earnings to be weak qoq due to the onset of the monsoon which
traditionally impacts volumes. However, we do expect volumes to recover significantly in 3Q
and 4QFY12.
We expect sustained growth in global steel output and China's increasing dependence on
imported ore to underpin robust iron ore demand growth out to 2014. The market is expected
to be particularly tight in 2011/12 even as supply increases due to volume expansion in Brazil
and Australia out to 2014. We hence expect iron ore realizations to continue to be robust for
Sesa and model average realization of US$99/t and SU$93/t for FY12/13F.
On the volumes front, the company continues to be constrained by logistical issues in both
Karnataka and Goa. Though the ban on exports from Karnataka has been lifted, the State
Government is yet to put in place clear policies for evacuation. Evacuation in Goa has also
been hampered due to restriction on movement of trucks. We note that passage of the Goa
mining policy will pave the way for increase in capacity to 40mt by end FY13F. We remain
conservative on our volume estimates and factor in DMT volumes of 19.4mt and 20.9mt for
FY12/13F.
Passage of the draft MMDR bill in its current form of 100% royalty sharing could impact
earnings by 6% and our valuations by Rs20/share in our view. However, we note that the final
bill could be significantly altered and could be some time away.
At 5.4x FY12F earnings, we believe valuations remain attractive. We have a Buy rating with
TP of Rs360.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa reported muted 1QFY12 earnings with volumes of 4.3mt and average realization of
US$89/t. EBITDA came in at Rs11.5bn (-21% yoy and -46% qoq) versus our estimate of
Rs12.9bn. While 2Q should remain weak with volumes impacted by monsoon, earnings should
be strong in 2HFY12. Maintain Buy.
Net revenues were at Rs20.9bn (-13% yoy and -42% qoq) lower than our estimate of
Rs23.9bn. Weak iron ore sales volumes at 4.3mt DMT (-12% yoy and -36% qoq) was
expected due to logistical issues in both Karnataka and Goa as well as early onset of
monsoon. However, average realizations too declined to US$89/t versus US$104/t in 4QFY11
due to higher sales in the domestic market.
Export duty increased expectedly to US$16/t from US$11/t in 4QFY11, due to rise in export
duty of fines from 5% to 20% in end-February.
The lower top-line led to an EBITDA which came in at Rs11.5bn (-21% yoy and -46% qoq)
versus our estimate of Rs12.9bn.
Other income was at Rs1.5bn declining only 12% qoq despite significantly lower cash balance
due to 18.5% investment in Cairn India.
Net profit was at Rs8.4bn (-36% yoy and -42% qoq) versus our estimate of Rs9.3bn.
We expect 2QFY12 earnings to be weak qoq due to the onset of the monsoon which
traditionally impacts volumes. However, we do expect volumes to recover significantly in 3Q
and 4QFY12.
We expect sustained growth in global steel output and China's increasing dependence on
imported ore to underpin robust iron ore demand growth out to 2014. The market is expected
to be particularly tight in 2011/12 even as supply increases due to volume expansion in Brazil
and Australia out to 2014. We hence expect iron ore realizations to continue to be robust for
Sesa and model average realization of US$99/t and SU$93/t for FY12/13F.
On the volumes front, the company continues to be constrained by logistical issues in both
Karnataka and Goa. Though the ban on exports from Karnataka has been lifted, the State
Government is yet to put in place clear policies for evacuation. Evacuation in Goa has also
been hampered due to restriction on movement of trucks. We note that passage of the Goa
mining policy will pave the way for increase in capacity to 40mt by end FY13F. We remain
conservative on our volume estimates and factor in DMT volumes of 19.4mt and 20.9mt for
FY12/13F.
Passage of the draft MMDR bill in its current form of 100% royalty sharing could impact
earnings by 6% and our valuations by Rs20/share in our view. However, we note that the final
bill could be significantly altered and could be some time away.
At 5.4x FY12F earnings, we believe valuations remain attractive. We have a Buy rating with
TP of Rs360.
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