Sesa Goa - 4QFY10 Result Update

Sesa Goa reported 4QFY10 results, which are above our estimates. Net sales stood at Rs28.2bn (yoy up 79%, qoq up 36.3%), EBITDA stood at Rs15bn (yoy up 103.1%, qoq up 45.1%) and PAT stood at Rs12.1bn (yoy up 121.5%, qoq up 46.6%). Sesa reported EPS of Rs14.5. During the quarter, Sesa reported iron ore sales volume of 7.4mt (yoy up 47.2%, qoq up 8.6%). This includes volumes from Dempo of 1.8mt. For full year FY10, the company reported volumes of 20.5mt including 3.67mt of Dempo (around 37% over FY09 incl Dempo and around 14% excluding Dempo). The average realization during the quarter was USD66/t (yoy up 30%, qoq up 21.9%). During the quarter, Sesa reported EBITDA margins of 53.4% (yoy up 634bps, qoq up 324bps). The increase was mainly on account of higher realizations. During FY10, Sesa sold around 80% of the iron ore on spot basis and balance on contract basis.

Recnt news of China imposing ban on traders from importing importing iron ore below 60% Fe content and ongoing mining issues in Orissa and Karnataka has proved to be an overhang on the stock in the past few trading sessions with China’s ban playing a major role. However, there is no proper official clarification available on the same. We feel, there cannot be a complete blanket ban on imports by China. Hence, we remain positive on the long term growth story of Sesa and expects it to achieve volume guidance of 50mt by FY13E. As on 31st Mar ‘10, Sesa has cash balance of Rs69.5bn (ex-inter corporate deposit of Rs10bn to Vedanta Aluminium). At the CMP of Rs456, the stock is trading at 8.1x FY11E EPS of Rs56.5 and at 7.5x FY12E EPS of Rs60.6. On EV/EBITDA basis, the stock is trading at 4.6x FY11E EV/EBITDA and at 3.6x FY12E EV/EBITDA; while on P/B basis, the stock is trading at 3.3x FY11E book value and at 2.1x FY12E book balue. We maintain BUY on the stock with target price of Rs550 (5x FY12E EV/EBITDA).