Sesa Goa Ltd mining minerals industries sesa goa

Sesa Goa Ltd (updated - 01 Feb 2012)
The market appears to have been carried away by the performance of India’s largest iron ore miner - Sesa Goa - in the December quarter. The stock ran up 14% in just two sessions, and at Rs 214, all the positive news appears to have been factored into the price. Though its revenue rose 16%, its earnings per share declined 36%.

Considering all the regulatory issues, the company’s profit for the nine months to December 2011 is less than half its annual profit in March 2011.Withjusttwo months left for the fiscal to end, investors should brace themselves for a possible dip of 25% in annual profits.

Higher iron ore prices in the international market, coupled with a weak rupee, helped Sesa Goa improves average realizations on their on ore it sold. Sales from Goa, from where it earns about four-fifths of its revenue were 17.6% higher than last year.

Overall, volumes for Q3 were better than expected as it sold 0.64 MT of its inventory through e-auction in Karnataka. However, it now has an inventory of 0.10-0.15 MT in the state, where iron ore mining is currently banned, and hence, will find it hard to sustain volume growth.

Spot iron ore prices at $154.5/ tonne are still about 3% higher than January 2011 prices. Operating profit declined 26% on account of the 20% export duty. The additional 10% increase in this duty is likely to further erode profits in the coming quarters.

Consolidated net profit declined 36% on account of the forex loss to Rs 691.52 crore. This is after accounting for the Rs 121.93 crore it earned from its 20% holding in Cairn India.

At the end of December 2011, Sesa Goa’s total debt stood at Rs 4,381 crore, which is 0.32 times its shareholders equity. It currently trades at a price which is 6.19 times its trailing 12 months earnings. This is expensive given the near-term concerns, which include the mining ban in Karnataka and the verdict of the ongoing inquiry into illegal mining in Goa.
Source - Economic Times

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