Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Supreme Court of India bans mining in Bellary due to environment concerns
As per media reports, the Supreme Court of India (SC) has ordered an immediate
ban on all mining activities (primarily iron ore) in 10,868 hectares in the Bellary
district of Karnataka. The order to ban mining follows a report by the SC appointed
Central Empowered Committee (CEC) that highlighted rampant illegal mining in
this region. The CEC report mentions that ~90% of iron ore production from
Bellary is from forest area, with the majority of the mines operating outside their
sanctioned lease area, causing irreversible damage to environment.
Way forward – scope of CEC survey widened to include Tumkur, Chitradurga
The court widened the scope of the undergoing survey and directed the CEC to
submit an “Environment Impact Assessment” report on iron ore mining in the
Tumkur and Chitradurga districts of Karnataka. The Ministry of Environment and
Forest (MoEF) has been directed to submit an interim report on the Indian iron ore
scenario, in consultation with mines, steel and commerce ministry within a week.
Iron ore supplies from Karnataka to be adversely impacted
Karnataka is the second largest iron ore producing state in India (after Orissa),
contributing ~20% of the total iron ore production. The Bellary region accounts for
a significant portion of this (70-75%), though exact figures are not readily available.
Around 40 mines in the Bellary region had already been shut down as per the
earlier SC directive and the current decision is likely to impact another 55 mines,
thus further constraining the iron ore supply in the region.
Reduces visibility on resumption of iron ore exports from Karnataka
Iron ore exports are unlikely to be impacted in the short term, as there are
presently no exports from Karnataka (state government imposed the ban in July
2010). The continuation of the mining ban may significantly reduce visibility upon
the resumption of iron ore exports from Karnataka in the medium term. FIMI, the
Indian iron ore association, forecasts ~20% YoY FY12 decline in iron ore exports
from India. We believe there is likely further downside risk to Indian iron ore
exports, as domestic steel players located in Karnataka/adjoining areas look for
alternative sources of iron ore supply, thus restricting iron ore available for export.
Potential stock impact: JSW Steel, Sesa Goa
We believe JSW Steel (Buy, target price: INR1,120) procures ~60% of its iron ore
requirements from the spot market, with a major portion being procured from
Bellary. We understand that JSW has been increasingly diversifying its iron ore
sourcing from other regions, including the Chitradurga region in Karnataka and
Orissa. Yet, it remains dependent on Bellary for a significant portion of its iron ore
requirements. In case the iron ore constraints continue, its operations could be
adversely impacted. Sesa Goa (Buy, target price: INR360), which operates iron ore
mines in the Chitradurga region of Karnataka (30% of its annual production), will
not be immediately impacted. Any impact assessment for Sesa will likely depend
on the findings of the CEC report on the Chitradurga region. We are watching this
very closely, as the policy environment regarding iron ore mining in India is
becoming very stringent given the high level of environmental degradation in the
state of Karnataka. As we are still awaiting further details from the SC order,
we are unable to conclusively ascertain the impact. We will be coming out with
an update once we have more clarity on this issue (page 3: valuation and risks).
Valuation and risks
JSW Steel
Valuation: After the acquisition of Ispat Industries, we used SOTP methodology to value
JSW Steel. We value JSW Steel standalone operations at 7x FY12E EV/EBITDA (at a slight
discount to the average over the last three years), Ispat Industries at a 6.3x FY12E EV/EBITDA
(at a ~10% discount to JSW Steel's target valuation) and Chilean iron ore assets at 5x FY12E
EV/EBTIDA. At our INR1,120 target price, JSW Steel should trade at 11.5x FY12E EPS, which
is in line with the average PER (x) over the last three years.
Risks: (1) Delay in Ispat integration, (2) higher-than-anticipated increase in steel making raw
material prices, (3) overhang of an inflation wary government of India, (4) delay in ongoing
expansion/stabilization of commissioned capacity.
Sesa Goa
Valuation: We use SOTP valuation to arrive at our target price for Sesa Goa as we have
factored in the completion of the proposed acquisition of a minority stake in Cairn India by 1Q
FY12. We value Sesa Goa's iron ore business at 4.6x FY12E EV/EBITDA, in line with the
corresponding valuation of global iron ore miners, leading to a value of INR185/share for
Sesa's iron ore business. We value Sesa's minority stake in Cairn India at INR175/share, after
incorporating a holding company discount of 15%. Our SOTP valuation leads to a target price
of INR360.
Risks: (1) Sustained iron ore price weakness, (2) capacity ramp-up lower than expectations,
(3) regulatory overhang and imposition of additional export duty, mining tax, iron ore royalty
or other regulatory measures by the government of India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Supreme Court of India bans mining in Bellary due to environment concerns
As per media reports, the Supreme Court of India (SC) has ordered an immediate
ban on all mining activities (primarily iron ore) in 10,868 hectares in the Bellary
district of Karnataka. The order to ban mining follows a report by the SC appointed
Central Empowered Committee (CEC) that highlighted rampant illegal mining in
this region. The CEC report mentions that ~90% of iron ore production from
Bellary is from forest area, with the majority of the mines operating outside their
sanctioned lease area, causing irreversible damage to environment.
Way forward – scope of CEC survey widened to include Tumkur, Chitradurga
The court widened the scope of the undergoing survey and directed the CEC to
submit an “Environment Impact Assessment” report on iron ore mining in the
Tumkur and Chitradurga districts of Karnataka. The Ministry of Environment and
Forest (MoEF) has been directed to submit an interim report on the Indian iron ore
scenario, in consultation with mines, steel and commerce ministry within a week.
Iron ore supplies from Karnataka to be adversely impacted
Karnataka is the second largest iron ore producing state in India (after Orissa),
contributing ~20% of the total iron ore production. The Bellary region accounts for
a significant portion of this (70-75%), though exact figures are not readily available.
Around 40 mines in the Bellary region had already been shut down as per the
earlier SC directive and the current decision is likely to impact another 55 mines,
thus further constraining the iron ore supply in the region.
Reduces visibility on resumption of iron ore exports from Karnataka
Iron ore exports are unlikely to be impacted in the short term, as there are
presently no exports from Karnataka (state government imposed the ban in July
2010). The continuation of the mining ban may significantly reduce visibility upon
the resumption of iron ore exports from Karnataka in the medium term. FIMI, the
Indian iron ore association, forecasts ~20% YoY FY12 decline in iron ore exports
from India. We believe there is likely further downside risk to Indian iron ore
exports, as domestic steel players located in Karnataka/adjoining areas look for
alternative sources of iron ore supply, thus restricting iron ore available for export.
Potential stock impact: JSW Steel, Sesa Goa
We believe JSW Steel (Buy, target price: INR1,120) procures ~60% of its iron ore
requirements from the spot market, with a major portion being procured from
Bellary. We understand that JSW has been increasingly diversifying its iron ore
sourcing from other regions, including the Chitradurga region in Karnataka and
Orissa. Yet, it remains dependent on Bellary for a significant portion of its iron ore
requirements. In case the iron ore constraints continue, its operations could be
adversely impacted. Sesa Goa (Buy, target price: INR360), which operates iron ore
mines in the Chitradurga region of Karnataka (30% of its annual production), will
not be immediately impacted. Any impact assessment for Sesa will likely depend
on the findings of the CEC report on the Chitradurga region. We are watching this
very closely, as the policy environment regarding iron ore mining in India is
becoming very stringent given the high level of environmental degradation in the
state of Karnataka. As we are still awaiting further details from the SC order,
we are unable to conclusively ascertain the impact. We will be coming out with
an update once we have more clarity on this issue (page 3: valuation and risks).
Valuation and risks
JSW Steel
Valuation: After the acquisition of Ispat Industries, we used SOTP methodology to value
JSW Steel. We value JSW Steel standalone operations at 7x FY12E EV/EBITDA (at a slight
discount to the average over the last three years), Ispat Industries at a 6.3x FY12E EV/EBITDA
(at a ~10% discount to JSW Steel's target valuation) and Chilean iron ore assets at 5x FY12E
EV/EBTIDA. At our INR1,120 target price, JSW Steel should trade at 11.5x FY12E EPS, which
is in line with the average PER (x) over the last three years.
Risks: (1) Delay in Ispat integration, (2) higher-than-anticipated increase in steel making raw
material prices, (3) overhang of an inflation wary government of India, (4) delay in ongoing
expansion/stabilization of commissioned capacity.
Sesa Goa
Valuation: We use SOTP valuation to arrive at our target price for Sesa Goa as we have
factored in the completion of the proposed acquisition of a minority stake in Cairn India by 1Q
FY12. We value Sesa Goa's iron ore business at 4.6x FY12E EV/EBITDA, in line with the
corresponding valuation of global iron ore miners, leading to a value of INR185/share for
Sesa's iron ore business. We value Sesa's minority stake in Cairn India at INR175/share, after
incorporating a holding company discount of 15%. Our SOTP valuation leads to a target price
of INR360.
Risks: (1) Sustained iron ore price weakness, (2) capacity ramp-up lower than expectations,
(3) regulatory overhang and imposition of additional export duty, mining tax, iron ore royalty
or other regulatory measures by the government of India.
No comments:
Post a Comment