Hold Sesa Goa - PINC Result Review

Volume guidance lowered; Maintain Hold

Sesa Goa's Q2FY11 consolidated revenues increased by 70.5% YoY to Rs9.2bn led by enhanced sales volumes (25% YoY to 2mn tonnes) and increased realisations (up 55% YoY to USD77/tonne). Consequently, operating profit grew by 98.7% YoY to Rs3.0bn and adjusted profit by 107.4% YoY to Rs3.5bn aided by lower effective tax rate (5.1%). Sesa has cash and equivalents of Rs85.8bn (incl. Rs10bn of ICD to VAL).

The company has lowered FY11 volume growth guidance to 10% from 20-25% earlier. Consequently we have lowered FY11 and FY12 volume estimates to 23.2mnt (25.7mnt) and 27.8mnt (30.8mnt) respectively.

VALUATIONS AND RECOMMENDATION

At CMP of Rs359 the stock is trading at 5.9x FY12E EV/EBITDA. We maintain 'HOLD' on the stock with a revised target price of Rs349 (Sesa's business valued at Rs257/share based on DCF, Cairn stake @ 20% discount to CMP).

Source : Equity Bulls

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