Hold Sesa Goa; Target :Rs 156 ::ICICI Securities,

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Export duty on iron ore hiked to 30%…
In a surprise move, the government has raised export duty on iron ore
lumps and fines to 30%, effective from 30th December 2011, as compared
to 20% earlier. The move is surprising as India's iron ore exports are
already on a declining trend. During the April – November period this
fiscal, iron ore exports have already declined by ~28% to ~ 40 Million
tonnes (Mt). So as to factor in the recent hike in export duty, we have
lowered Sesa Goa's consolidated EBITDA estimates by 5% for FY12E and
19.6% for FY13E & consolidated PAT estimates by 4.6% for FY12E & 12.5%
for FY13E, keeping volume unchanged at 15 mt for FY12E & 16.6 for FY13E.
Iron ore exports have been on a declining trend…
Over the last couple of years the iron ore exports have already witnessed
a declining trend (exhibit : 2) on the back of duty hikes, increase in freight
costs and more recently curbs imposed on states such as Karnataka to
contain illegal mining. During the April – November period this fiscal, iron
ore exports have already declined by ~28% to ~ 40 Million tonnes (Mt).
Sesa Goa’s profitability to be impacted by recent duty hike …
Sesa Goa is one of the leading exporter of iron ore in country. As majority
of the Sesa Goa’s iron ore output is exported (~85-90%), we expect that
the recent hike in export duty would impact the profitability of the
company. For FY12E we expect consolidated EBITDA and PAT to decline
by 5% and 4.6% respectively while for FY13E, while for FY13E we expect
consolidated EBITDA and PAT to decline by 19.6% and 12.5%
respectively
Valuation
At the CMP of | 156, the stock is trading at 6.5x and 4.4x its FY12E and
FY13E P/E, respectively. On the back of headwinds faced by the sector as
a whole we have valued the core business at 3.5x FY13E EV/EBITDA (as
against 4x earlier) and assigned a 30% holding company discount to the
investment value in Cairn India Ltd. Thus, we have arrived at a target price
of | 156 and assigned a HOLD rating on it.