Sesa Goa - 1QFY2014 Result Update - Motilal Oswal

Sesa Goa's (SESA) 1QFY14 adjusted PAT at INR4.8b (up 68% QoQ) was 36% above estimate due to above estimate PAT of associates and lower-than-expected loss in the core business. Reported PAT was INR4.14b, which included a forex loss of INR992m.

- Adjusted EBITDA (loss) was 62% lower than our estimate at -INR428m. Losses in the iron ore segment were lower QoQ, while pig iron segment turned around with an EBIT of INR144m.

- Coke production decreased 10% QoQ to 85kt and sales (incl. inter-segment) decreased 8% QoQ to 83kt. Average realization increased 3% QoQ to INR16,183/ton. Losses (EBIT) declined 16% QoQ to negative INR992/ton.

- Pig iron production increased 6% QoQ to 110kt, while sales rose 34% QoQ to 127kt. There was a segmental profit of INR144m (INR1,135/ton), compared to a loss of INR225m in 4QFY13.

- Interest expenses increased by 7% QoQ to INR1.5b.

- Iron ore mining and dispatches remained suspended in both Karnataka and Goa. However, there was liquidation of 20kt of inventory through e-auction in Karnataka.

- Mining is expected to start in 2QFY14 in Karnataka while the forest clearance is still awaited. In Goa, mining is not expected to start soon as the date for hearing is yet to be announced by the Supreme Court.

- Sesa is maintaining its guidance for the first shipment from the 2mtpa DSO Project in Liberia by end-FY14. Completed drilling increased by 22,500 meters QoQ to 91,500 meters.

- On a merged Sesa-Sterlite basis, the stock is trading at FY15E EV/EBITDA of 4.6x and P/BV of 0.4x. Though valuations are not demanding, the concern remains on servicing the huge debt of ~INR750-800b on the standalone balance sheet of merged Sesa-Sterlite. Maintain Buy.

Source : Equity Bulls

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