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Sesa Goa (SESA)
Metals & Mining
Horizon hazy as regulatory headwinds persist. Sesa reported 3QFY12 EBITDA of
Rs10.9 bn, broadly in line with our estimate. Increase in export duty and lower volumes
have hurt yoy performance despite strong iron ore prices and benefits of Rupee
depreciation. With further increase in export duty to 30% and continuing uncertainty
on production, it is difficult to be constructive on the core business. We maintain our
REDUCE rating with end-FY2013E target price of Rs190 (Rs175 earlier).
Sesa’s 3QFY12 results marginally lower than our estimates
Sesa’s net income of Rs6.9 bn (-35.1% yoy) was in line with our estimate of Rs6.7 bn, helped by
consolidation of earnings of Cairn after its stake reached the threshold level of 20%. Net income
was impacted by forex loss of Rs1.8 bn. Key highlights of the results are
3QFY12 EBITDA of Rs10.9 bn (-11.8% yoy) was 4% lower than our estimate. EBITDA declined
yoy due to increase in export duty and lower volumes courtesy non-renewal of mining lease.
Note that the Government increased export duty to 30% w.e.f. Jan 2012 versus 20% earlier.
Realization/tonne was lower yoy due to decline in iron ore prices but increased qoq to
US$91/tonne. Iron ore shipments increased 5.4% yoy to 5.04 mn tonnes. Shipments from Goa
mines grew 17.6% yoy to 3.4 mn tonnes. Karnataka mines did not have ore production due to
the ongoing ban with shipments of 0.64 mn tonnes entirely through unwinding of inventories.
Sesa has around 150K tonnes of inventory left at the Karnataka mine.
Regulatory hurdles continue for now
Sesa’s FY2013E target of 20 dmt of iron ore shipments is contingent on the approval to start
mining in Karnataka and no incremental damage from the Shah Commission report on illegal
mining in Goa. Sesa has environment clearance to mine ~14.5 mtpa in Goa and 6 mtpa in
Karnataka. The Sesa management indicated that Supreme Court hearing on grant of relief to
mines in Karnataka has been pushed back to first week of Feb. Shah Commission report on illegal
mining in Goa will be submitted along with report on Orissa by mid-March. Shah Commission’s
report will be discussed by various ministries post which corrective action may be taken.
Fine-tune estimates and maintain REDUCE rating
We have fine-tuned our estimates on the back of change to our Re/US$ assumption and minor
adjustments in cost items. Our EPS estimates decline by 5.8%/1%/0.7% for FY2012/13/14E.
Maintain REDUCE with a fair value of Rs190. Fair value is based on long-term iron ore price
assumption of US$85/tonne and 70 mn tonnes accretion to reserve.
Gross debt of Rs43.8 bn at end-December 2011
The company had a total debt balance of Rs43.8 bn as of December 31, 2011. Out of this,
around US$400 mn is foreign exchange denominated loans including around US$200-250
mn of outstanding FCCBs. The company also completed the acquisition of Goa Energy
Private Limited (GEPL) for a total cash consideration of Rs0.5 bn during the quarter. GEPL
owns a 30 MW waste heat recovery power plant and utilizes the waste heat generated from
Sesa’s coke making and pig iron facilities. The company had cash and cash equivalents
amounting to Rs4.5 bn with majority of it in the form of debt mutual funds.
Key highlights from 3QFY12 earnings call
Total iron ore deliveries for 3QFY12 stood at 5.04 mn dmt. Production at 3.33 mn dmt
was impacted by ongoing ban on mining in Karnataka.
Realization on shipments from Karnataka mine was a modest US$31/tonne on ex-mine
basis. With no material sinter capacity and beneficiation plant other than JSW, Sesa was
forced to sell iron ore at the base rate in auctions in the domestic market.
Coke operations segment reported an EBIT loss of Rs173.4 mn during the quarter as
against an EBIT profit of Rs221.7 mn in 3QFY11.
The company incurred royalty charges of around Rs250/tonne in 3QFY12 as against
Rs325/tonne in 2QFY12.
The company has almost exhausted its entire unsold inventory lying in Karnataka. Around
100-150 kt of inventory remains to be sold which would happen in the current quarter.
The 625 ktpa pig iron capacity expansion and associated doubling of metallurgical coke
capacity to 560 ktpa is set to be completed during the current quarter. The
commissioning of the project is marginally behind schedule owing to some constructionrelated
delays.
The company has declared an interim dividend of Rs2/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sesa Goa (SESA)
Metals & Mining
Horizon hazy as regulatory headwinds persist. Sesa reported 3QFY12 EBITDA of
Rs10.9 bn, broadly in line with our estimate. Increase in export duty and lower volumes
have hurt yoy performance despite strong iron ore prices and benefits of Rupee
depreciation. With further increase in export duty to 30% and continuing uncertainty
on production, it is difficult to be constructive on the core business. We maintain our
REDUCE rating with end-FY2013E target price of Rs190 (Rs175 earlier).
Sesa’s 3QFY12 results marginally lower than our estimates
Sesa’s net income of Rs6.9 bn (-35.1% yoy) was in line with our estimate of Rs6.7 bn, helped by
consolidation of earnings of Cairn after its stake reached the threshold level of 20%. Net income
was impacted by forex loss of Rs1.8 bn. Key highlights of the results are
3QFY12 EBITDA of Rs10.9 bn (-11.8% yoy) was 4% lower than our estimate. EBITDA declined
yoy due to increase in export duty and lower volumes courtesy non-renewal of mining lease.
Note that the Government increased export duty to 30% w.e.f. Jan 2012 versus 20% earlier.
Realization/tonne was lower yoy due to decline in iron ore prices but increased qoq to
US$91/tonne. Iron ore shipments increased 5.4% yoy to 5.04 mn tonnes. Shipments from Goa
mines grew 17.6% yoy to 3.4 mn tonnes. Karnataka mines did not have ore production due to
the ongoing ban with shipments of 0.64 mn tonnes entirely through unwinding of inventories.
Sesa has around 150K tonnes of inventory left at the Karnataka mine.
Regulatory hurdles continue for now
Sesa’s FY2013E target of 20 dmt of iron ore shipments is contingent on the approval to start
mining in Karnataka and no incremental damage from the Shah Commission report on illegal
mining in Goa. Sesa has environment clearance to mine ~14.5 mtpa in Goa and 6 mtpa in
Karnataka. The Sesa management indicated that Supreme Court hearing on grant of relief to
mines in Karnataka has been pushed back to first week of Feb. Shah Commission report on illegal
mining in Goa will be submitted along with report on Orissa by mid-March. Shah Commission’s
report will be discussed by various ministries post which corrective action may be taken.
Fine-tune estimates and maintain REDUCE rating
We have fine-tuned our estimates on the back of change to our Re/US$ assumption and minor
adjustments in cost items. Our EPS estimates decline by 5.8%/1%/0.7% for FY2012/13/14E.
Maintain REDUCE with a fair value of Rs190. Fair value is based on long-term iron ore price
assumption of US$85/tonne and 70 mn tonnes accretion to reserve.
Gross debt of Rs43.8 bn at end-December 2011
The company had a total debt balance of Rs43.8 bn as of December 31, 2011. Out of this,
around US$400 mn is foreign exchange denominated loans including around US$200-250
mn of outstanding FCCBs. The company also completed the acquisition of Goa Energy
Private Limited (GEPL) for a total cash consideration of Rs0.5 bn during the quarter. GEPL
owns a 30 MW waste heat recovery power plant and utilizes the waste heat generated from
Sesa’s coke making and pig iron facilities. The company had cash and cash equivalents
amounting to Rs4.5 bn with majority of it in the form of debt mutual funds.
Key highlights from 3QFY12 earnings call
Total iron ore deliveries for 3QFY12 stood at 5.04 mn dmt. Production at 3.33 mn dmt
was impacted by ongoing ban on mining in Karnataka.
Realization on shipments from Karnataka mine was a modest US$31/tonne on ex-mine
basis. With no material sinter capacity and beneficiation plant other than JSW, Sesa was
forced to sell iron ore at the base rate in auctions in the domestic market.
Coke operations segment reported an EBIT loss of Rs173.4 mn during the quarter as
against an EBIT profit of Rs221.7 mn in 3QFY11.
The company incurred royalty charges of around Rs250/tonne in 3QFY12 as against
Rs325/tonne in 2QFY12.
The company has almost exhausted its entire unsold inventory lying in Karnataka. Around
100-150 kt of inventory remains to be sold which would happen in the current quarter.
The 625 ktpa pig iron capacity expansion and associated doubling of metallurgical coke
capacity to 560 ktpa is set to be completed during the current quarter. The
commissioning of the project is marginally behind schedule owing to some constructionrelated
delays.
The company has declared an interim dividend of Rs2/share.
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