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Government raises export duty on iron ore: The government has raised export
duty on iron ore to ad valorem 30% on lumps and fines, with effect from
December 30, 2011, compared to 20% earlier. Iron ore exports from India have
already declined by 25.2% to 35.4mn tonnes from April-October 2011 on
account of export ban in Karnataka, stringent measures in issuing export permits
in Odisha, a sharp decline in international iron ore price and increased export
duty. Post the export duty hike, rise in rail freight and the recent decline in iron ore
price are expected to severely affect iron ore exports from India. Before the export
duty hike (as per Federation of Indian Mineral Industries), total iron ore exports
during FY2012 were estimated to be 60mn tonnes compared to its previous
estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than
60mn tonnes during FY2012. While Sesa Goa’s profits are expected to be
affected adversely, we do not expect any impact on NMDC’s financials as we do
not expect any export of iron ore by NMDC during FY2012 and FY2013.
Higher export duty to affect Sesa Goa’s profitability: Sesa Goa generates ~90%
of its net sales from iron ore exports. Hence, the export duty hike would increase
the company’s export duty expenses without any corresponding increase in iron
ore prices. Accordingly, we have raised our export duty expenses for Sesa Goa to
`1,681cr (previous estimate – `1,390cr) for FY2012 and to `1,932cr (previous
estimate – `1,546cr) for FY2013. Also, we now believe some of the Karnataka
iron ore would now be sold domestically, as EBITDA/tonne may not favor exports
anymore. Our EBITDA estimates for FY2012 and FY2013 stand pruned by 8.1%
and 9.1% to `3,314cr and `3,712cr, respectively.
Outlook and valuation: Despite the recent correction in spot iron ore prices,
we expect international iron ore prices to remain firm in the medium term, as we
expect additional meaningful supplies to hit the sea-borne market only from
CY2014. We believe the current stock price discounts negatives such as
acquisition of a minority stake in the unrelated oil business via acquisition of
Cairn India’s stake, increased export duty, higher railway freight and lower
volumes from Goa mines. We recommend Buy on the stock with an SOTP-based
target price of `195 (`213 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Government raises export duty on iron ore: The government has raised export
duty on iron ore to ad valorem 30% on lumps and fines, with effect from
December 30, 2011, compared to 20% earlier. Iron ore exports from India have
already declined by 25.2% to 35.4mn tonnes from April-October 2011 on
account of export ban in Karnataka, stringent measures in issuing export permits
in Odisha, a sharp decline in international iron ore price and increased export
duty. Post the export duty hike, rise in rail freight and the recent decline in iron ore
price are expected to severely affect iron ore exports from India. Before the export
duty hike (as per Federation of Indian Mineral Industries), total iron ore exports
during FY2012 were estimated to be 60mn tonnes compared to its previous
estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than
60mn tonnes during FY2012. While Sesa Goa’s profits are expected to be
affected adversely, we do not expect any impact on NMDC’s financials as we do
not expect any export of iron ore by NMDC during FY2012 and FY2013.
Higher export duty to affect Sesa Goa’s profitability: Sesa Goa generates ~90%
of its net sales from iron ore exports. Hence, the export duty hike would increase
the company’s export duty expenses without any corresponding increase in iron
ore prices. Accordingly, we have raised our export duty expenses for Sesa Goa to
`1,681cr (previous estimate – `1,390cr) for FY2012 and to `1,932cr (previous
estimate – `1,546cr) for FY2013. Also, we now believe some of the Karnataka
iron ore would now be sold domestically, as EBITDA/tonne may not favor exports
anymore. Our EBITDA estimates for FY2012 and FY2013 stand pruned by 8.1%
and 9.1% to `3,314cr and `3,712cr, respectively.
Outlook and valuation: Despite the recent correction in spot iron ore prices,
we expect international iron ore prices to remain firm in the medium term, as we
expect additional meaningful supplies to hit the sea-borne market only from
CY2014. We believe the current stock price discounts negatives such as
acquisition of a minority stake in the unrelated oil business via acquisition of
Cairn India’s stake, increased export duty, higher railway freight and lower
volumes from Goa mines. We recommend Buy on the stock with an SOTP-based
target price of `195 (`213 earlier).
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