Motilal Oswal Maintains Buy on Sesa Goa

SESA GOA 3QFY11: Below est due to lower volumes; Realization up 53% YoY; Maintain Buy

Net Sales increased 19% YoY to Rs22.5b; below our est. of Rs25.8 due to lower iron ore sales volumes. Sales tonnage declined 21% YoY to 5.38m tons, primarily due to extended monsoons and restricted road transport timings in Goa.

Iron ore revenues grew 21% to Rs20.9b as realization improved 53% YoY to Rs3,882/ton as spot iron ore prices were on a upward trend since mid September.

Despite higher than estimate iron ore realization, margins were lower by ~Rs300/ton at Rs2,146/ton due to higher transportation and other expenditure.

Segmental EBIT of iron ore grew 18% to Rs11.5b on higher realization. EBIT per ton increased 49% YoY to Rs2,146. Cash & equivalents stand at Rs82.3b.

We expect both iron ore volumes and realization to grow in 4QFY11 leading to higher profits in 4QFY11 as demand from China remains strong and bottlenecks on account of rains are likely to be absent. Global iron ore supply is expected to remain tight in 2011 due to shortage of new capacities. Outlook for 2012 however is more comfortable. Stock is trading at PE of 7.1x FY12 and EV/EBITDA of 3.3x FY12. Maintain Buy.

Source : Equity Bulls

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