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Sesa Goa 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Sesa Goa reported disappointing results from its core operations in 2QFY2013 led by lower iron ore sales volumes. However, the companyRs.s adjusted PAT grew by 42.1% yoy due to income from share of profit in associate company. We recommend Accumulate rating on the stock.

Ban on iron ore mining in Goa dents top-line: The company's net sales declined by 62.7% yoy to Rs.294cr (lower than our estimate of Rs.725cr) mainly on account of a decline in iron ore sales volumes (down 87.0% yoy to 0.2mn tonne) due to a ban on mining in Goa. Iron ore iron ore realization was flat yoy at US$85/tonne.

Lower sales and higher export duty hit EBITDA: The EBITDA de-grew by 97.7% yoy to Rs.6cr mainly due to a decline in net sales and higher fixed costs. The company reported an exceptional item related to forex gain and VRS amounting to Rs.188cr. Share of income from its associate (Cairn India) was Rs.464cr. Excluding exceptional items and including share of profit from associates, the adjusted PAT increased 42.1% yoy to Rs.334cr (above our estimate of Rs.247cr).

Outlook and valuation: We expect sales volumes to decline drastically from Goa due to a recent ban by the Supreme Court and Ministry of Environment and Forests (MOEF). Hence, we expect its core business profits to decline significantly in FY2013, although the share of income from its associate, Cairn India is expected to result in growth in the bottom-line Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, the valuation of Sesa Goa will mirror the valuation of the consolidated company, Sesa Sterlite. We recommend an Accumulate rating on the stock.