Sesa Goa Result Updated

8/2/2019 Sesa Goa Result Updated

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Please refer to important disclosures at the end of this report 1

Particulars (` cr) 4QFY12 4QFY11 % chg (yoy) 3QFY12 % chg (qoq)Net sales 2,794 3,612 (22.6) 2,617 6.8EBITDA 997 2,107 (52.7) 1,085 (8.1)

EBITDA margin (%) 35.7 58.3 (2,266)bp 41.5 (579)bp

Adj. PAT 1,228 1,462 (16.0) 692 77.6Source: Company, Angel Research

For 4QFY2012, Sesa Goas (Sesa) net sales and EBITDA declined by 22.6% and

52.7% yoy, respectively. However, the companys adjusted PAT declined by only

16.0% yoy due to income from share of profit from associate.We recommend Accumulate on the stock.Lower sales volume and realization dent 4QFY2012 top line: For 4QFY2012,Sesas net sales decreased by 22.6% yoy to `2,794cr, lower than our estimate of

`3,006cr, on account of lower iron ore sales volumes (down 21.2% yoy) and

realizations (down 12.4% yoy) during the quarter.

Higher export duty dents EBITDA: Export duty increased by 103.4% yoy to `742crin 4QFY2012, as the government had raised export duty on iron ore to 30% from

January 2012. Thus, EBITDA declined by 52.7% yoy to `997cr and EBITDA

margin slipped by 2,266bp yoy. Sesa reported share of income from associate

(Cairn India) of `466cr during 4QFY2012. Excluding exceptional items and

including share of profit from associates, adjusted PAT decreased by 16.0% yoy to

`1,228cr (in-line with our estimate of `1,247cr).

Outlook and valuation: We expect Sesas operating margin to decline by 752bpyoy in FY2013 on account of higher iron ore export duty to 30%, which was

effective from 4QFY2012 (prior to 4QFY2012, duty stood at 20%). However,

considering the ongoing process of group restructuring by the promoter, Vedanta

Resources, valuation of Sesa will mirror the valuation of consolidated company,

Sesa Sterlite. We value Sesa Sterlite business at `206, based on the SOTPmethodology,and recommend Accumulate on the stock.Key financials (Consolidated)Y/E March (` cr) FY2011 FY2012E FY2013E FY2014ENet sales 9,193 8,310 9,067 9,316% chg 56.9 (9.6) 9.1 2.8

Net profit 4,222 2,696 3,957 3,944% chg 60.6 (36.2) 46.8 (0.3)

FDEPS (`) 47.5 30.3 44.5 44.3OPM (%) 56.5 42.1 35.7 35.5

P/E (x) 3.9 6.0 4.1 4.1

P/BV (x) 1.3 1.1 0.9 0.7

RoE (%) 40.7 19.3 23.5 19.5RoCE (%) 42.8 20.6 15.0 13.4

EV/Sales (x) 0.8 2.3 2.0 1.9

EV/EBITDA (x) 1.5 5.5 5.6 5.2

Source: Company, Angel Research

ACCUMULATECMP `183

Target Price `206

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 55.1

MF / Banks / Indian Fls 4.8

FII / NRIs / OCBs 25.2

Indian Public / Others 14.9

Abs. (%) 3m 1yr 3yr

Sensex 2.7 (12.1) 51.9

SESA (2.8) (44.0) 46.9

Mining

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

SESA@IN

15,892

1.2

328/149

624,953

Face Value (`)

BSE Sensex

Nifty

Reuters Code

1

17,207

5,223

SESA.BO

Bhavesh ChauhanTel: 022- 39357600 Ext: 6821

[email protected]

Vinay RachhTel: 022- 39357600 Ext: 6841

[email protected]

Sesa GoaPerformance Highlights

4QFY2012 Result Update | Mining

April 24, 2012


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Sesa Goa | 4QFY2012 Result Update

April 24, 2012 3

Lower realization and volumes drive top-line growth

For 4QFY2012, Sesas net sales decreased by 22.9% yoy to `2,794cr, lower than

our estimate of `3,006cr, on account of lower iron ore sales volumes and

realizations. Iron ore sales volumes declined by 21.2% yoy to 5.2mn tonnes and

iron ore realization decreased by 12.4% yoy to US$99/tonne.

Exhibit 3:Iron ore sales volume down 21.2% yoy


Exhibit 4:EBIT/tonne trend


EBITDA fell by 52.7% yoy

Export duty increased by 103.4% yoy to `742cr in 4QFY2012, as the government

had raised export duty on iron ore to 30% from January 2012. EBITDA declined by

52.7% yoy to `997cr mainly due to lower net sales and higher export duty. EBITDA

margin slipped by 2,266bp yoy due to lower iron ore realization and increased

export duty. The company reported an exceptional item related to advisory fees,

taxes and other expenses incurred for the strategic investment in Cairn India of

`66cr in 4QFY2012. Consequently, PAT declined by 52.4% yoy to `696cr in

4QFY2012. Sesa reported share of income from associate (Cairn India) of `466cr

during 4QFY2012. Excluding exceptional items and including share of profit from

associates, adjusted PAT decreased by 16.0% yoy to `1,228cr (in-line with our

estimate of `1,247cr).

Exhibit 5:EBITDA declined by 52.7% yoy


Exhibit 6:Adjusted PAT down by 16.0% yoy


0

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4QFY10 2QFY11 4QFY11 2QFY12 4QFY12

(U$/tonne)

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Sales Volume (LHS) Average real izat ion (RHS)

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April 24, 2012 4

Sesa reports an increase in reserves and resources

Sesas reserves and resources increased by 68mn tonnes to 374mn tonnes during

FY2012, with majority of additions coming from its Goa mines. Further, Sesas

aeromagnetic survey of its iron ore deposits in Liberia indicated a significant

upside potential to its existing resource base of 1bn tonnes. Currently, Sesa is in

the process of completing its scoping study on Liberia project and is starting

exploration on the same.

Investment arguments

Commencement of operations in Karnataka to drive volume growth

The Supreme Court had classified Sesas Karnataka iron ore mine in Category B

based on CECs report submitted to the Supreme Court. While the Supreme Courthas recommended the restart of category A mines after complying with the

provisions of the rehabilitation and reclamation (R&R) plan, it did not provide

clarity on the commencement of mines falling under category B/C. Hence, we

believe commencement of operations from Sesas Karnataka mines could take

longer than expected. Nevertheless, we model 1mn/2mn tonnes of iron ore

production and sales from Karnataka for FY2013/FY2014.

Western Cluster Ltd. (WCL) A long-term story

During August 2011, Sesa acquired a 51% stake in WSL, Liberia, for a cash

consideration of US$90mn (~`400cr). WCL will develop the Western Cluster Iron

ore project in Liberia, which includes development of iron ore deposits and the

required infrastructure for iron ore export. WCL has potential iron ore resources of

over 1bn tonnes (~330mn tonnes of saleable product); it is in close proximity to

the existing port infrastructure and has access to land for railway corridor. Sesa

aims to commence production from this mine in coming 2 years.


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April 24, 2012 5

Outlook and valuation

We expect Sesas operating margin to decline by 752bp yoy in FY2013 on account

of higher iron ore export duty to 30%, which was effective from 4QFY2012 (prior

to 4QFY2012, duty stood at 20%). Although Sesas core business PAT is expected

to decline in FY2013, its PAT, including share of profits from its associate Cairn

India, is expected to grow by 29.4% yoy in FY2013.

Considering the ongoing process of group restructuring by the promoter, Vedanta

Resources, valuation of Sesa will mirror the valuation of consolidated company,

Sesa Sterlite. We value Sesa Sterlite business at `206, based on the SOTPmethodology.A key catalyst for the stock would be commencement of production and sales fromits Karnataka mine.

Exhibit 7:SOTP valuation of Sesa Sterlite (FY2014) (` cr)

Subsidiary Valuation technique Target multiple (x) Equity value % Stake ValueSterlite Industries EV/EBITDA 3.0 12,359 100% 12,359

Balco EV/EBITDA 3.0 5,250 51% 2,678

Vedanta Aluminium EV/EBITDA 4.0 (7,538) 100% (7,538)

Hindustan Zinc (20% holding company discount) EV/EBITDA 4.0 58,521 65% 30,384

Sterlite Energy FCFE 1.0 1,475 100% 1,475

Tasmania Copper mines P/BV 1.0 1,009 100% 1,009

International Zinc EV/EBITDA 2.0 2,130 100% 2,130

MALCO BV - - 100% 1,712

Sesa Goa EV/EBITDA 3.5 11,571 100% 11,571

Cairn India (20% holding company discount) DCF - 72,347 59% 34,032

less : Cairn debt (28,797)

Net equity value 61,015Fair value for Sesa Sterlite (`) 206

Source: Angel Research

Exhibit 8:EPS Angel forecast vs. consensus

Year Angel forecast(%) Bloomberg consensus(%) Variation(%)FY13E 44.5 38.7 14.9

FY14E 44.3 37.8 17.3

Source: Bloomberg, Angel Research


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April 24, 2012 6

Exhibit 9:Recommendation summaryCompanies CMP TP Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) (`) (` cr) FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14E FY13E FY14ECoal India 356 - Neutral 224,926 - 15.0 13.7 4.1 3.3 9.3 7.9 30.1 26.8 29.0 26.6MOIL 265 - Neutral 4,455 - 10.8 10.0 1.7 1.5 5.2 4.3 16.1 15.8 16.4 16.5

Sesa Goa 183 206 Accum. 15,892 13 4.1 4.1 0.9 0.7 5.6 5.2 23.5 19.5 15.0 13.4NMDC 171 183 Accum. 67,658 7 9.2 8.4 2.2 1.8 4.7 4.0 26.6 24.1 32.3 29.3

Source: Angel Research

Exhibit 10:EV/EBITDA band


(5,000)

0

5,000

10,000

15,00020,000

25,000

30,000

35,000

40,000

Aug-0

4

Mar-05

Oct-05

May-0

6

Dec-0

6

Jul-07

Feb-0

8

Sep-0

8

Apr-09

Nov-0

9

Jun-1

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Jan-1

1

Aug-1

1

Mar-12

(`

cr

)

1.0x 2.5x 4.0x 5.5x 7.0x


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April 24, 2012 7

Exhibit 11:P/E band


Exhibit 12:P/BV band


0

100

200

300

400

500

600

Aug-0

4

Mar-05

Oct-05

May-0

6

Dec-0

6

Jul-07

Feb-0

8

Sep-0

8

Apr-09

Nov-0

9

Jun-1

0

Jan-1

1

Aug-1

1

Mar-12

(`)

3.0x 6.0x 9.0x 12.0x

0

100

200

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400

500

600

700

Aug-0

4

Mar-05

Oct-05

May-0

6

Dec-0

6

Jul-07

Feb-0

8

Sep-0

8

Apr-09

Nov-0

9

Jun-1

0

Jan-1

1

Aug-1

1

Mar-12

(`)

1.0x 2.0x 3.0x 4.0x


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April 24, 2012 8

Profit and loss statement (Consolidated)Y/E March (` cr) FY2009 FY2010 FY2011 FY2012 FY2013E FY2014EGross sales 4,991 5,842 9,208 8,353 9,248 9,503

Less: Excise duty 73 44 64 79 181 186Net sales 4,918 5,798 9,144 8,275 9,067 9,316Other operating income 41 60 49 36 - -

Total operating income 4,959 5,858 9,193 8,310 9,067 9,316% chg 29.7 18.1 56.9 (9.6) 9.1 2.8

Total expenditure 2,417 2,710 4,002 4,810 5,827 6,010Net raw materials 494 534 858 973 907 1,036

Other mfg costs 394 391 958 1,973 2,542 2,550

Personnel 77 130 208 268 263 298

Other 1,452 1,654 1,978 1,595 2,114 2,126

EBITDA 2,542 3,149 5,192 3,500 3,240 3,306% chg 10.4 23.9 64.9 (32.6) (7.4) 2.0

(% of Net sales) 51.3 53.7 56.5 42.1 35.7 35.5

Depreciation 52 75 96 106 109 112

EBIT 2,490 3,074 5,095 3,394 3,131 3,194% chg 10.5 23.4 65.7 (33.4) (7.8) 2.0

(% of Net sales) 50.2 52.5 55.4 40.8 34.5 34.3

Interest charges 4 56 87 433 477 429

Other income 224 426 552 235 211 222

(% of PBT) 8.3 12.4 9.9 7.3 7.4 7.4

Share in profit of asso. - - - - - -

Recurring PBT 2,710 3,445 5,560 3,195 2,865 2,987% chg 16.6 27.1 61.4 (42.5) (10.3) 4.2

Extra. Inc/(Expense) - - - 660.9 - -

PBT (reported) 2,710 3,445 5,560 3,129 2,865 2,987Tax 715 806 1,337 1,021 860 896

(% of PBT) 26.4 23.4 24.1 32.6 30.0 30.0

PAT (reported) 1,995 2,639 4,222 2,108 2,006 2,091Add: Earnings of asso. - - - 588 1,951 1,854

Less: Minority interest (7) (10) - - - -

Extra. Expense/(Inc.) - - - - - -

PAT after MI (reported) 1,988 2,629 4,222 2,696 3,957 3,944ADJ. PAT 1,988 2,629 4,222 2,696 3,957 3,944% chg 28.4 32.2 60.6 (36.2) 46.8 (0.3)

(% of Net sales) 40.1 44.9 45.9 32.4 43.6 42.3

Basic EPS (`) 25.3 31.6 49.1 30.3 44.5 44.3Fully Diluted EPS ( ) 25.3 29.6 47.5 30.3 44.5 44.3% chg 28.4 17.0 60.6 (36.2) 46.8 (0.3)


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April 24, 2012 9

Balance sheet (Consolidated)

Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014ESOURCES OF FUNDSEquity share capital 79 83 87 87 87 87Reserves & surplus 4,637 7,835 12,724 15,010 18,455 21,785

Shareholders funds 4,716 7,918 12,810 15,097 18,542 21,872Minority interest 33 43 - - - -

Total loans 2 1,961 999 3,937 3,937 3,287

Deferred tax liability 66 75 68 68 68 68

Total liabilities 4,817 9,997 13,878 19,102 22,547 25,227APPLICATION OF FUNDSGross block 886 2,751 3,065 4,265 5,265 6,265

Less: Acc. depreciation 342 574 649 755 865 976

Net block 544 2,177 2,416 3,510 4,400 5,288Capital work-in-progress 49 79 729 429 79 (271)

Goodwill - - - - - -

Investments 3,125 4,565 8,800 12,710 14,661 16,515

Current assets 1,683 4,416 3,660 3,677 4,585 4,962Cash 18 2,392 897 1,101 2,031 2,304

Loans & advances 1,103 1,146 1,322 1,322 1,322 1,322

Other 562 879 1,441 1,254 1,232 1,336

Current liabilities 584 1,240 1,726 1,223 1,178 1,266Net current assets 1,099 3,176 1,934 2,453 3,407 3,696Mis. exp. not written off - - - - - -

Total assets 4,817 9,997 13,878 19,102 22,547 25,227Note: Cash and bank balance include deposits


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April 24, 2012 10

Cash flow statement (Consolidated)Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EProfit before tax 2,710 3,445 5,560 3,129 2,865 2,987

Depreciation 52 75 96 106 109 112Change in working capital 314 179 (304) (315) (23) (16)

Others (221) (363) (451) - - -

Direct taxes paid 721 764 1,368 1,021 860 896

Cash flow from operations 2,134 2,571 3,533 1,898 2,092 2,186(Inc.)/Dec. in fixed assets (147) (149) (984) (900) (650) (650)

(Inc.)/Dec. in investments (965) (3,078) (4,131) (3,323) - -

(Inc.)/Dec. in loans & adv. - - - - - -

Others 113 (2,168) 2,150 - - -

Cash flow from investing (999) (5,394) (2,965) (4,223) (650) (650)Issue of equity - 537 - - - -

Inc./(Dec.) in loans - 2,358 (7) 2,938 - (650)

Dividend paid (Incl. tax) 138 206 328 409 512 614

Others 1,001 6 85 - - -

Cash flow from financing (1,139) 2,682 (420) 2,528 (512) (1,264)Inc./(Dec.) in cash (3) (141) 149 204 930 272

Opening cash balances 18 14 34 897 1,101 2,031Closing cash balances 18 34 183 1,101 2,031 2,304


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April 24, 2012 11

Key ratios

Y/E March FY2009 FY2010 FY2011 FY2012E FY2013E FY2014EValuation ratio (x)P/E (on FDEPS) 7.2 6.2 3.9 6.0 4.1 4.1P/CEPS 7.1 5.6 3.8 5.8 4.0 4.0

P/BV 3.1 1.9 1.3 1.1 0.9 0.7

Dividend yield (%) 1.2 1.8 2.7 2.2 2.7 3.3

EV/Sales 2.3 1.9 0.8 2.3 2.0 1.9

EV/EBITDA 4.4 3.6 1.5 5.5 5.6 5.2

EV/Total assets 2.3 1.1 0.5 1.0 0.8 0.7

Per share data (`)EPS (Basic) 25.3 31.6 49.1 30.3 44.5 44.3

EPS (fully diluted) 25.3 29.6 47.5 30.3 44.5 44.3

Cash EPS 25.9 32.5 48.5 31.5 45.7 45.6

DPS 2.3 3.3 5.0 4.0 5.0 6.0

Book value 59.9 95.3 144.0 169.7 208.4 245.8

DuPont analysisEBIT margin 50.2 52.5 55.4 40.8 34.5 34.3

Tax retention ratio (%) 73.6 76.6 75.9 67.4 70.0 70.0

Asset turnover (x) 0.8 0.5 1.2 1.0 0.5 0.4

RoIC (post-tax) 28.2 20.6 51.8 28.1 11.9 10.0

Cost of debt - - - - - -

Leverage (x) - - - - - -

Operating RoE 28.2 20.6 51.8 28.1 11.9 10.0

Returns (%)RoCE (pre-tax) 63.9 41.7 42.8 20.6 15.0 13.4

Angel RoIC (pre-tax) 38.5 27.0 72.0 44.9 17.2 14.2

RoE 51.9 41.6 40.7 19.3 23.5 19.5

Turnover ratios (x)Asset T/o (gross block) 6.0 3.2 3.2 2.3 1.9 1.6

Inventory (days) 213 261 265 260 250 250

Receivables (days) 28 20 20 24 24 24

Payables (days) 170 351 403 250 250 250

WC capital (days) 33 12 7 18 22 22

Solvency ratios (x)Net debt to equity 0.0 0.1 (0.0) (1.0) (0.9) (0.8)

Net debt to EBITDA 0.0 0.1 (0.0) (4.4) (5.1) (5.3)

Interest Coverage (EBIT/Int.) 583.2 55.4 58.4 7.8 6.6 7.4


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April 24 2012 12

Disclosure of Interest Statement Sesa Goa

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Research Team Tel: 022 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Sesa Goa Result Updated