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Sesa Goa 3QFY13 Conference Call update

Contributed by Nirmal Bang

Sesa Goa (SGL) organised a conference call today regarding its 3QFY13 performance. Following are the key takeaways:

- As regards Karnataka iron ore mining, SGL said it is awaiting two orders from the Supreme Court. The first order is for resumption of operations at its Karnataka mine and the second order is for directing the state government to grant all the clearances. SGL also said its Karnataka mining lease expired on 20 October 2012 and it has filed an application for renewal of the lease, which includes clearance from the forest authorities.

- SGL said it can achieve approved iron ore output of 2.29mt at Karnataka within a week. The company is looking at EBITDA/tn of around US$40 at current prices.

- As regards Goa, the state government is expected to file an affidavit in the next one or two days and then the Supreme Court will fix the date of hearing.

- SGL said it is facing headwinds at its pig iron plant due to dumping by two large players, while the iron ore sourcing situation is also grim. The company is looking at 100% capacity utilisation in new blast furnace post building of a pending bridge.

- As regards Western Cluster in Liberia, SGL is looking at a capex of US$80/tn- US$90/tn. The company has planned initial capex of US$350mn-US$400mn for the first phase capacity of 4mt. Subsequently the capacity would be raised to 10mt and 30mt. The company has three iron ore deposits i.e. Bomi, Bea Mountain and Mano and it is currently working extensively on Bomi iron ore deposits. Out of 48,000 metres of drilling, 45,000 metres drilling has been done at Bomi deposits and the company is now looking at reserves of around 200mt as compared to initial estimate of just 50mt at Bomi.

- SGL booked a forex loss of around Rs530mn, out of which around Rs250mn has been shown separately (as an exceptional item) and the rest has been included in interest costs. The net debt on its books is around Rs40bn.

Valuation: We have revised our FY13 estimates following strong performance in pig iron and met-coke segments, but we have not revised our operational estimates for FY14. We have cut our EBITDA and PAT before profit of associate company estimates by 33% and 63%, respectively, for FY13E. However, the iron ore segment’s EBITDA is just 5% of the consolidated entity Sesa-Sterlite’s EBITDA and considering the fact that we have not revised our FY14 EBITDA estimate, we have kept our target price unchanged at Rs191. We have revised downwards our combined entity Sesa-Sterlite’s EBITDA and PAT by 1% and 2%, respectively for FY13E, while we have kept our FY14 estimates unchanged. We have also retained our Hold rating on SGL. We may revise Sesa-Sterlite’s valuation after Sterlite Industries’ results, which are scheduled on 29 January 2013.