Sesa Goa - Q1FY13 Result Update - Centrum

Realizations surprise positively again

Sesa goa's topline at Rs17.3bn was ~5% higher than our expectations due to better realizations in both INR and US$ terms. EBITDA stood at ~Rs6.8bn with margin at 39%, higher by 330bps due to increase in realizations sequentially. PAT was reported at Rs9.6bn including profit from Cairn of Rs7.6bn but also included forex loss of ~Rs2.3bn and exceptional loss of ~Rs0.2bn. Adjusted PAT stood at Rs11.4bn. Company expects 14-15 MT of iron ore sales in FY13E from Goa operations. Karnataka operations have received 2.29mtpa capacity R&R approval from CEC and are expected to restart soon after getting approvals from IBM and MOEF. We remain cautious on the overall prospects of the company with Goa operations struggling on logistics front and Karnataka restart dependent on grant of various approvals on time. Recommend neutral with a target price of Rs208 based on the SOTP valuation of the proposed Sesa Sterlite group.

- Realizations surprise positively: Iron ore volumes stood at 2.9 MT (our estimate: 2.9 MT) as movement of ore from South Goa was restricted during June. Realizations surprised positively and came at ~US$100/tonne (higher sequentially in rupee terms) as Sesa was able to realize sequentially stable spot prices in China.

- Margin improves sequentially: EBITDA margin stood at 39% due to better rupee realization on account of steep rupee depreciation. Costs remained largely in control except increase in stores and spares cost due to pig iron blast furnace relining.

- Conference call highlights: Volumes in Goa expected to remain below 1MT in Q2FY13E due to logistics issue in South Goa during monsoons. Volumes for FY13E are expected to be between 14-15 MT from Goa. Karnataka operations can begin production with 2.29 mtpa capacity after getting the mining plan approval from IBM and obtaining environmental clearance from the MoEF but mining lease is also getting expired in Oct'12 which would require renewal and could take some time. Capex for FY13E expected to be ~Rs8bn with spending on Liberia project at ~Rs4.5bn. Company is still in the process of completing its drilling on Liberia project (with resource base of 1bn tonne) and maintained its guidance of partial shipments by the end of FY14E. Pig iron volumes are expected to be ~475kt for FY13E.

- Earnings revised downwards for FY13E on lower volumes: We revise our iron ore volume estimates lower for FY13E/14E with lower volumes from Goa due to logistics issues and various approvals and lease renewal required for restarting of Karnataka operations. We build in 0.5MT/2MT volumes from Karnataka operations and expect 14MT/14.5MT volumes from Goa in FY13E/14E. We have revised our iron ore realizations assumptions upwards for FY13E to factor in better realizations of Sesa during Q1FY13. We have revised our US$/INR assumption for FY14E to 50 and as a result expect better realizations in FY14E. We revise our EBITDA estimates for FY13E lower by 3.8% and higher by 6.6% for FY14E.

- Valuations: We continue to value the stock on the basis of our SOTP valuation for the proposed group entity Sesa Sterlite (which is expected to be in place before CY12E end). We recommend neutral with a target price of Rs208.

Source : Equity Bulls

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