Sesa Goa Ltd (Q4 FY13)

India Infoline News Service | Mumbai |

The company’s topline declined 91% on a yoy basis and 20% on a qoq basis to Rs2.36bn on account of regulatory restrictions in Karnataka and Goa.

CMP Rs155, Target Rs168, Upside 8.3%

  • Iron ore production was nil as operations were completely halted in Goa and Karnataka

  • Sesa Goa has received the approval to start mining in Karnataka from SC; but restarting operations would take time as forest clearance and mining lease have expired

  • Production of pig iron and met coke improved on a qoq basis

  • Management expects first shipment from Liberia to start by end-FY14

  • The company during the year managed to add 59mn tons of reserves and resources in its domestic operations to 433mn tons

Result table
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 2,909 27,944 (89.6) 2,365 23.0
Raw material purchases and stores (2,636) (3,477) (24.2) (1,531) 72.1
Transportations costs (202) (2,683) (92.5) (389) (48.1)
Export duty 3 (7,422) - - -
Personnel costs (599) (876) (31.6) (560) 6.9
Other overheads (434) (1,808) (76.0) (938) (53.7)
Operating profit (959) 11,678 (108.2) (1,053) (9.0)
OPM (%) (33.0) 41.8 - (44.5) 1157 bps
Depreciation (984) (286) 244.2 (354) 178.2
Interest (1,378) (1,011) 36.4 (1,020) 35.1
Other income 91 141 (35.2) 154 (40.7)
PBT (3,230) 10,522 - (2,273) 42.1
Tax 895 (3,848) (123.3) 807 10.9
Effective tax rate (%) 27.7 36.6   35.5  
Other prov/minority etc 5,127 4,658 10 6,690 (23)
Adjusted PAT 2,792 11,332 (75.4) 5,224 (46.5)
Adj. PAT margin (%) 96.0 40.6 - 220.9 -
Extra ordinary items 183 289 (37) (257) -
Reported PAT 2,975 11,621 (74.4) 4,967 (40.1)
Ann. EPS (Rs) 12.9 52.2 (75.4) 24.0 (46.5)
Source: Company, India Infoline Research

Iron ore production continue to remain impacted

Sesa Goa’s revenue continued to remain below par due to the mining ban implemented in Karnataka and Goa. The company’s topline declined 91% on a yoy basis and 20% on a qoq basis to Rs2.36bn on account of regulatory restrictions in Karnataka and Goa. Iron ore production and sale remained suspended in Goa. The company managed to sell 0.01mn tons of iron ore inventory in Karnataka through court monitored e-auctions. Revenue was primarily driven by the sales of pig iron, met coke and power. Sales of pig iron increased 58% yoy to 95,000 tons due to liquidation of previous quarter inventory. Sales of met coke too improved 28.5% yoy to 90,000 tons. Production of pig iron increased by 75% yoy to 104,000 tons and of met coke jumped 48% yoy to 90,000 tons, led by higher utilization levels at the recently commissioned new capacities.


Sesa Goa operating remains in the red

Sesa Goa registered a loss Rs0.95bn against a loss of Rs1bn in the previous quarter at the operating level due to no production in Karnataka and Goa. Total expenditure of the company increased qoq mainly on account of higher raw material cost. On a segmental basis, the company reported an EBIT loss of Rs225mn due to subdued pig iron prices. Pig iron ore prices remained under pressure due to lower demand in the domestic market and iron ore prices largely remained flat. Bottomline Ex of associate income reported a loss of Rs2.3bn due to a jump in interest income and a loss at operating level.


Shipment from Liberia to start from Q4 FY14

Sesa Goa acquired the remaining 49% stake in Western Cluster Ltd, Liberia during the quarter, increasing its shareholding to 100%. It has drilled a total of ~69,000 meters in the three mines i.e. Bumi, Bia and Mano and expects the first shipment to arrive in India in Q4 FY14. The initial estimates of reserves and resources stand at 966mn tons. The company aims to produce 2mn tons from Liberia in the first phase which will subsequently be increased to 10mn tons and then to 30mn tons. At a capex of US$80-US$90/ton, Sesa Goa will incur a capex of US$300-400mn over the next 18 months to start the shipments in Q4 FY14. The company plans to initially transport iron ore through road by the time the infrastructure for the rail facilities is setup. It plans to start mining first at Bumi due to its proximity to the port.


Standalone iron ore business to remain subdued

Supreme Court has allowed Category ‘B’ mines to start mining in Karnataka subject to statutory clearances, payment of penalties, implementation of Reclamation & Rehabilitation (R&R) plans. SC has also directed state government to clear all the clearances of the companies in a time bound manner. Sesa's mine falls under Category B and its mining lease expired in October ‘12 for which the renewal process has started; forest clearance is required.  The company is also asking for a temporary working permit for sometime during which its forest clearance can be cleared. While the original capacity was 6mtpa; capacity now approved is 2.3mtpa. We forecast 2mn tons in FY14, which would be seen in the second half of the year. We expect Goa mines’ contribution to be low in FY15 on expectations that the mining approvals would take some time as was the case in Karnataka.  We maintain our Market Performer with a revised 9-month price target of Rs168.


Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 83,101 25,544 24,450 37,790
yoy growth (%) (9.6) (69.3) (4.3) 54.6
Operating profit 35,000 4,653 5,802 9,202
OPM (%) 42.1 18.2 23.7 24.4
Pre-exceptional PAT 27,616 23,013 21,987 24,495
Reported PAT 27,616 23,013 21,987 24,495
yoy growth (%) (34.6) (16.7)
BSE 253.10 1.20 (0.48%)
NSE 253.65 1.85 (0.73%)

***Note: This is a NSE Chart

 

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