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EARNINGS REVIEW
Sesa Goa (SESA.BO)
Not Rated Equity Research
Below expectations: lower volumes, overhang of regulatory actions
What surprised us
Sesa Goa reported 2QFY12 adjusted net income of Rs1.4bn (-63% yoy), 62%
below GS and 52% below Bloomberg consensus estimates. Reported net
income includes a Rs2.3bn MTM forex translation loss on outstanding
borrowings. 2QFY12 adjusted EBITDA stood at Rs2.6bn (-24% yoy), 29% below
GS expectations. The operating miss was primarily to the top line (-14%
yoy, 10% below GS estimates) with lower volumes. 2QFY12 despatches
stood at 1.55mn tons (-15% yoy) vs. GSe 1.80mn tons, led by: 1) continued
export ban and enforcement of mining ban in Karnataka towards end-August; 2)
termination of the third-party mining agreement in Orissa in Sept 2010; and 3)
logistical constraints in Goa. Realizations came in at Rs3,834/ton, (-1% yoy, -15%
qoq, GSe Rs3,700/ton). The company expects the Supreme Court-appointed
investigation in Karnataka to be completed by December, after which it stated it
will likely be able to resume mining, even though the export ban may not be
lifted in the near future. So far, it has sold about 300kT (of 800 kT stockpile) in
Karnataka through the e-auction mechanism. In Goa, there is an ongoing
investigation by the government into illegal mining activities; the company
expects a report to be submitted soon. The company stated it completed its
acquisition of a 51% stake in Western Cluster’s Liberian mining assets with
potential resources of 1bn tonnes for US$90mn.
What to do with the stock
We reduce our FY12E-14E EPS by 8%-18% to account for lower-thanexpected volumes. With limited upside to volumes and spot prices having
already corrected, we believe resolution of the Karnataka iron ore mining
ban and visibility on regulatory action in Goa would remain the market’s
focus. We are Not Rated on the company.
Financial Advisory disclosure
Goldman Sachs is acting as financial advisor to Sesa Goa Limited in an announced
strategic transaction.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Sesa Goa (SESA.BO)
Not Rated Equity Research
Below expectations: lower volumes, overhang of regulatory actions
What surprised us
Sesa Goa reported 2QFY12 adjusted net income of Rs1.4bn (-63% yoy), 62%
below GS and 52% below Bloomberg consensus estimates. Reported net
income includes a Rs2.3bn MTM forex translation loss on outstanding
borrowings. 2QFY12 adjusted EBITDA stood at Rs2.6bn (-24% yoy), 29% below
GS expectations. The operating miss was primarily to the top line (-14%
yoy, 10% below GS estimates) with lower volumes. 2QFY12 despatches
stood at 1.55mn tons (-15% yoy) vs. GSe 1.80mn tons, led by: 1) continued
export ban and enforcement of mining ban in Karnataka towards end-August; 2)
termination of the third-party mining agreement in Orissa in Sept 2010; and 3)
logistical constraints in Goa. Realizations came in at Rs3,834/ton, (-1% yoy, -15%
qoq, GSe Rs3,700/ton). The company expects the Supreme Court-appointed
investigation in Karnataka to be completed by December, after which it stated it
will likely be able to resume mining, even though the export ban may not be
lifted in the near future. So far, it has sold about 300kT (of 800 kT stockpile) in
Karnataka through the e-auction mechanism. In Goa, there is an ongoing
investigation by the government into illegal mining activities; the company
expects a report to be submitted soon. The company stated it completed its
acquisition of a 51% stake in Western Cluster’s Liberian mining assets with
potential resources of 1bn tonnes for US$90mn.
What to do with the stock
We reduce our FY12E-14E EPS by 8%-18% to account for lower-thanexpected volumes. With limited upside to volumes and spot prices having
already corrected, we believe resolution of the Karnataka iron ore mining
ban and visibility on regulatory action in Goa would remain the market’s
focus. We are Not Rated on the company.
Financial Advisory disclosure
Goldman Sachs is acting as financial advisor to Sesa Goa Limited in an announced
strategic transaction.
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