>SESA GOA (ULJK)

Q4 FY09 Result
Sesa Goa has announced its fourth quarter results and it was in line with our expectations. The company’s consolidated Q4 FY09 net sales were down 14.9% yoy at Rs 14299 mn versus Rs 16813 mn and its net profit was down 32.5% yoy at Rs 5476 mn versus Rs 8116 mn. The OPM for the quarter was at 52.7% versus 72.4%.

Volume remains flat
Iron ore volumes for Q4FY09 remained flat yoy at 5 million tones because of sudden fall in demand from China in the last five months, however for the full year company saw 22% growth in volumes despite difficult market conditions. The company also saw an improvement in the inventory situation in February‐March 2009. The company is looking at 20‐25% volume growth for FY10.

Realisation comes down
Realisations were lower in last quarter due to weak iron ore prices, iron ore prices have fallen more than 50% since October 2008 however depreciating Indian rupee partially offset the negatives. The benefit of Rs 200/ tonne from abolition of 8% export duty on iron ore fines since Dec’08 was also passed on to customers.

Increase in reserves, exploration going on
Exploration and drilling programme in Karnataka and Goa have yielded gross additions of 54 million tonnes and after considering mined output of 16 million tonnes during the year from all mines, a net addition of 38 million tonnes. Reserves and resources as on 31 March 2009 were 240 million tonnes compared with 202 million tonnes at the end of FY 2008.
Additional 500 mt of iron ore reserves would be added over next 2‐3 years.


Outlook
We believe that the demand for steel and iron ore will start improving from September onwards, however realizations for FY10 will be lower than FY09. According to us the company is likely to see 15% increase in sales volume for FY10, and the average realization for the year will remain between USD 45 to 50 per tonne, depreciation in Indian rupee against USD will compensate to some extent for the fall in realisations. As the company exports two third of its production to china, the improvement min demand for steel and iron ore in china will act as a catalyst, also any rise in iron ore prices in the second half of the year will benefit the company because the company sells 80% of its produce in the spot market. We have valued Sesa Goa on EV/EBITDA basis, giving a target EV/ EBITDA of 3 and recommend a accumulate rating for the stock with a target price of Rs 131.

To see full report: SESA GOA