Sesa Goa - 1QFY2013 Result Update - Angel Broking

Sesa Goa (Sesa) reported disappointing results from its core operations in 1QFY2013 led by lower iron ore sales volumes. However, the company's adjusted PAT grew by 52.3% yoy due to income from share of profit from associate. We maintain our Neutral rating on the stock.

Lower sales volume dent 1QFY2013 top line: Net sales decreased by 17.8% yoy to Rs.1,733cr (lower than our estimate of Rs.2,319cr) led by decrease in iron ore sales volumes. Iron ore sales volumes declined by 48.3% yoy to 2.9mn tonnes (significantly below our estimate of 5.2mn tonnes) mainly due to ban in Karnataka and logistical constraints in Goa. Iron ore realization increased marginally by 1.0% yoy to US$100/tonne during the quarter.

Lower sales and higher export duty dents EBITDA: EBITDA decreased by 42.6%yoy to Rs.676cr mainly due to decline in net sales and higher export duty. Despite decline in net sales, export duty increased 25.6% yoy to Rs.434cr due to increase in export duty during December 2011. Sesa reported an exceptional item of Rs.252cr related to forex losses and VRS scheme for employees. Sesa also reported share of income from associate (Cairn India) of Rs.765cr during 1QFY2013 (Nil in 1QFY2012). Hence, adjusted net income (excluding exceptional items and including share of profit from associates) increased 52.3% yoy to Rs.1,216cr.

Outlook and valuation: We expect declining sales volumes from Goa and higher iron ore export duty to hit Sesa's profitability during FY2013-14. Further, Sesa is expected to produce only 2.3mn tonnes p.a. of iron ore from its Karnataka mines (compared to its capacity of 6mn tonnes) going forward. Hence, we expect its core business profits to decline in FY2013. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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