Neutral on Sesa Goa - 4QFY12 Results Update - Motilal Oswal

Sesa Goa's (SESA) 4QFY12 adjusted consolidated PAT declined 21% YoY to INR11.5b. However, this was still above our estimate of INR10.6b, mainly due to higher iron ore realizations.

- Reported PAT at INR11.6b: Reported PAT of INR11.6b was boosted by an extraordinary item of INR79m (net). The company benefitted from a forex gain of INR740m (adjusted against interest expenses) on FCCBs and packing contracts. It also incurred an extraordinary expense of INR661m on the Cairn India acquisition.

- Iron ore realizations higher than expected: SESA's 4QFY12 EBITDA increased 7% QoQ to INR11.6b, largely due to higher iron ore realizations. Iron ore realizations increased 9% QoQ to USD102/dmt.

- R&R up 22%: Reserves and resources (R&R) increased 68wmt (net) to 374wmt with a major part of the accretion from Goa mines (including Dempo).

- Dividend payout at 15%: A total dividend of INR4/share for FY12 implied ~15% payout on consolidated PAT.

- Reducing volumes from Karnataka mines to tardy court process: There is still no clarity on production levels from its Karnataka mines because of overall mining cap of 5m tons from Tumkur and Chitradurga together as per the recent Supreme Court order. We are now lowering our FY13 volume assumptions from the company's Karnataka mines to 1.2m dmt from 2.4m dmt earlier.

- Merger with Sterlite will dilute SOTP-based TP by 24%: Assuming the proposed merger of SESA with Sterlite Industries does not happen, we value SESA on SOTP basis at INR251/share (based on 5x core EBITDA, and its stake in Cairn India at a 20% discount to the latter's target price of INR330). On the other hand, if the merger goes through, the SOTP would be 24% lower at INR192/share. SESA is trading at 4.4x F13E EPS and 2.8x FY13E EV/EBTIDA (core). Sesa-Sterlite is trading at 4.6x FY13E EPS and 4.4x FY13E EV/EBITDA. Maintain Neutral.

Source : Equity Bulls

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