Maintain Buy on Sesa Goa - EPS cut 14% - Motilal Oswal

SESA GOA: Closing 3rd party mining in Orissa; Karnataka export ban continues; EPS cut 14% but upside at current spot prices

- Sesa Goa has announced termination of 3rd party mining operations in Orissa. As the contract has expired now, Sesa will lose nearly 2m tons of shipments.

The impact on earnings is likely to be less severe due to lower margins in the discontinued operations.

- Continued export ban from Karnataka will result in further reduction of ~3m tons of annual volumes.

- Though we have cut estimates to factor lower volumes, there are upsides if current iron ore spot prices prevail. At current rates, FY12 EPS will see a possible upside of ~28% to Rs59.7.

- We maintain Buy due to low cost operation in Goa, strong iron ore prices and attractive valuations. Stock is trading at 6.4xFY12 PE and 2.7xFY12 EV/EBITDA. Our target price is Rs400 based on EV/EBITDA of 5xFY12.

Source : Equity Bulls

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