Sesa Goa Ltd (Q2 FY13)

India Infoline News Service | Mumbai |

Sesa Goa Ltd (Q2 FY13)

CMP Rs169, Target Rs181, Upside 7.1%

  • Topline of Rs2.9bn was lower than our estimate of Rs4.6bn and declined sharply by 62.7% yoy on account of lower iron ore volumes
  • Iron ore sales volume of 0.2mn tons was lower by 87.1% yoy. The decline in volume was due to mining ban in Karnataka, temporary restriction on iron ore extraction in Goa and transportation restriction in South Goa during monsoons.
  • Net realizations decreased 14.4% qoq to Rs4,627/ton due to lower sales in export market and a sharp decline in global iron ore prices
  • CEC has approved Reclamation and Rehabilitation plan for company’s Karnataka mine with the production capacity of 2.29mtpa, management expect it resume mining in Karnataka subject to court’s approval
  • The Company has ~3mn tons of inventory in Goa and is hopeful that transportation of ore in Goa will begin in coming months
  • Volume headwinds coupled with higher export duty and transportation costs to keep standalone business performance under pressure
Result table
(Rs mn) Q2 FY13 Q2 FY12 % yoy Q1 FY13 % qoq
Net sales 2,944 7,897 (62.7) 17,326 (83.0)
Raw material purchases and stores (650) (1,720) (62.2) (2,933) (77.9)
Transportations costs (842) (1,143) (26.3) (1,730) (51.3)
Export duty (95) (872) (89.2) (4,338) (97.8)
Personnel costs (643) (625) 2.9 (693) (7.2)
Other overheads (669) (927) (27.9) (870) (23.1)
Operating profit 46 2,609 (98.2) 6,762 (99.3)
OPM (%) 1.6 33.0 (3,147) bps 39.0 (3,745) bps
Depreciation (334) (243) 37.4 (303) 10.3
Interest (817) (1,569) (47.9) (1,178) (30.6)
Other income 142 504 (71.8) 151 (5.8)
PBT (963) 1,302 - 5,432 -
Tax (351) 9 - (922) (61.9)
Effective tax rate (%) (36.4) (0.7)   17.0  
Other prov/minority etc 4,644 - - 7,652 (39)
Adjusted PAT 3,331 1,311 154.1 12,161 (72.6)
Adj. PAT margin (%) 113.1 16.6 9,653 bps 70.2 4,293 bps
Extra ordinary items 1,878 (1,298) - (2,522) -
Reported PAT 5,209 13 - 9,640 (46.0)
Ann. EPS (Rs) 15.3 6.0 154.1 56.0 (72.6)
Source: Company, India Infoline Research

Volumes plunge due to various regulatory issues

Topline of Rs2.9bn was lower than our estimate of Rs4.6bn and declined sharply by 62.7% yoy on account of lower iron ore volumes. Iron ore sales volume of 0.2mn tons was lower by 87.1% yoy. The decline in volume was due to mining ban in Karnataka, temporary restriction on iron ore extraction in Goa and transportation restriction in South Goa during monsoons.  Net realizations decreased 14.4% qoq to Rs4,627/ton due to lower sales in export market and a sharp decline in global iron ore prices. Sales volume from Karnataka were negligible at 0.01mn tons through the e-auction process initiated by the Government and that through Goa were 0.2mn tons.


Pig iron sales increased to 73,000 tons from 39,000 tons in Q1 FY13 due to a planned relining of blast furnace and low availability of iron ore from Karnataka in the previous quarter. Due to acute iron ore shortage the company has kept idle the new blast furnace and is operating the rest at lower utilizations levels. The company is looking at importing iron ore incase the situation in Karnataka and

Goa doesn’t improve.

Sales volume and realisation

Q2 FY13  Q1 FY13 % qoq Q2 FY12 % yoy
Sales (tons)          
Iron ore (mn tons) 0.20 1.55 (87.1) 2.90 (93.1)
Pig iron 73,000 63,277 15.4 39,000 87.2
           
Realisation (Rs/ton)          
Iron ore 4,627 3,834 20.7 5,408 (14.4)
Pig iron 29,560 29,485 0.3 35,103 (15.8)
Source: Company, India Infoline Research

Sesa Goa manages to stay in the green at operating level

The company managed to report an operating profit of Rs42mn for the quarter stood. The sharp decline in operating profit was due to the inability of the company to sell its iron ore. Iron ore sales for the quarter were 0.2mn tons against the 0.4mn tons produced. The company’s sales were restricted by the restriction of iron ore in South Goa and then a mining ban in complete Goa. Sesa Goa incurs a fixed cost of Rs300mn on a monthly basis for both, Karnataka and Goa. It has ~3mn tons of iron ore inventory and is waiting for the ban to be removed from already mined ore.  Margins were also under pressure due to a decline in iron ore realizations.


Cost analysis

Q2 FY13 Q2 FY11 % yoy Q1 FY13
BSE 298.00 13.35 (4.69%)
NSE 298.00 13.45 (4.73%)

***Note: This is a NSE Chart

 

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