29 April 2013
4QFY13 Results Update | Sector:
Metals
Sesa Goa
BSE Sensex
S&P CNX
19,388
5,904
Bloomberg
SESA IN
Equity Shares (m)
2,964.8
M.Cap. (INR b)/(USD b) 459.5/8.5
52-Week Range (INR)
208/141
1,6,12 Rel. Perf. (%)
-3/-12/-29
CMP: INR155
TP: INR191
Buy
Sesa-Sterlite:
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA*
NP
Adj. EPS (INR)
EPS Gr(%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV
Div. Yield (%)
* (attrib.)
4.1
0.6
3.9
4.6
0.6
5.1
3.9
5.0
0.5
5.0
3.9
2013 2014E 2015E
711.1
171.3
111.5
37.6
21.3
86.0
15.8
23.9
10.9
723.1
180.9
99.7
33.6
-3.0
110.0
13.3
13.3
12.2
742.2
178.1
91.5
30.9
-17.9
131.5
11.2
12.0
13.3
EV/EBITDA (x) * 5.5
Sesa-Sterlite merged entity basis
Sesa Goa's 4QFY13 EBITDA loss was 52% higher than est. at INR959m as coke
and pig iron business continue to make losses. Higher interest and
depreciation costs (some of it was non-recurring) enhanced the loss before
tax. Profit from associate (Cairn India) too was lower than estimates.
Iron ore mining and dispatches remained shut due to the mining ban in
Karnataka and Goa. Segmental fixed costs increased 26% QoQ to INR1.78b
largely driven by an increase in depreciation.
Coke production increased 3% QoQ to 94kt and sales (incl. inter-segment)
increased 12.5% QoQ to 90kt. Average realization declined 8% QoQ to
INR15,704/ton. Losses at EBIT level shrank 65% QoQ to INR1,187/ton. Pig iron
production increased 25% QoQ to 104kt, while sales increased 53% QoQ to
95kt. There was a loss of INR225m (INR2,373/ton) for the segment.
Interest expense was inflated by INR350m due to expiry of benefits of export
credit due to prolonged halt in exports.
R&R increased by 59m tons (net) to 433m tons for Indian business (46m tons
in Karnataka plus 387m tons in Goa).
Liberia:
R&R base are assessed to be 966m tons. Sesa is undertaking (initially)
2mtpa DSO project at specific project cost of USD80-90/ton at Bomi.
Karnataka:
Sesa is well geared to start mining at its 2.29mtpa Chitradurga
mine, but is awaiting forest clearance from MoEF and other permissions.
Goa:
The state government has started the process of renewing mining
licences so that miners can start operations after SC permission. State has
imposed INR2.3b of stamp duty for mining leases renewal which will be
amortized over a period of 20 years.
We lower FY14E volumes to 3.3m tons (from 5.7m tons) to factor further
delays for Goa mines. Hence, FY14E EPS is cut by 12% to INR21.6. On merged
basis stock is trading at FY15E EV/EBITDA of 5x and P/BV of 0.5x. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +9122 39825412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +9122 39825413
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Sesa Goa
Consolidated PAT declines 75% YoY; Pig & coke still in red; R&R improve
59m tons
Sesa Goa's 4QFY13 EBITDA loss was 52% higher than est. at INR959m as coke and
pig iron business continue to make losses. Higher interest and depreciation costs
(some of it was non-recurring) enhanced the loss before tax. Profit from associate
(Cairn India) too was lower than estimate. Consolidated PAT was INR2.85b (-75%
YoY).
Iron ore mining and despatches remained shut due to the mining ban in Karnataka
and Goa. Segmental fixed costs increased 26% QoQ to INR1.78b largely driven by
an increase in depreciation. Goa government has imposed INR2.3b of stamp duty
for renewal of mining leases that were operating under deemed extension since
2007. INR2.3b will be amortized over a period of 20 years.
Coke production increased 3% QoQ to 94kt (CU was 67%) and sales (incl. inter-
segment) increased 12.5% QoQ to 90kt. Average realization declined 8% QoQ to
INR15,704/ton. Losses at EBIT level shrank 65% QoQ to INR1,187/ton.
Pig iron production increased 25% QoQ to 104kt (CU was 67%), while sales increased
53% QoQ to 95kt. Margins of pig iron business still remain under pressure due to
high cost of sourcing iron ore from Karnataka e-auction and subdued demand for
pig iron. There was a loss of INR225m (INR2,373/ton) for the segment.
Interest expense was inflated by INR350m due to expiry of benefits of export
credit due to a prolonged halt in exports.
29 April 2013
2

Sesa Goa
Despite suspension of drilling activities, post the mining ban in Goa (Oct 2012),
reserves and resources (R&R) have increased by 59m tons (net) to 433m tons for
Indian business (46m tons in Karnataka plus 387m tons in Goa).
Forest clearance for Karnataka mine pending; Targeting 2mtpa from Liberia
by FY15; Maintain Buy
The R&R at three locations in Liberia together are assessed at 966m tons. Sesa is
undertaking (initially) 2mtpa DSO project at specific project cost of USD80-90/ton
at Bomi. This project is located at a distance of 76kms from the port. The first
shipment of ore is expected to start by end-FY14 through roads. The project is
viable at fob prices of ~USD90/ton. Other projects will be undertaken after the
success of Bomi project, although some developmental expenses will continue.
Sesa expects to achieve 2mtpa capacity by FY15.
Although Sesa is well-geared to start mining at its 2.29mtpa Chitradurga mine, yet
the mining restart will have to wait for the forest clearance from MoEF and other
permissions.
Goa government has started the process of renewing mining licences so that the
mines, which were operating under deemed renewal, can start mining whenever
SC gives permission. Stamp duty of INR200m for every 1mtpa of capacity has been
imposed by the state government. There is still no clarity regarding when and in
what shape the mining will restart in the state.
We lower FY14E volumes to 3.3m tons (from 5.7m tons) to factor further delays for
Goa mines. Hence, FY14E EPS is cut by 12% to INR21.6. On merged basis stock is
trading at FY15E EV/EBITDA of 5x and P/BV of 0.5x. Maintain
Buy.
29 April 2013
3

Sesa Goa
Conference call highlights
1. Karnataka: Mining to restart after obtaining forest clearance, expecting
clearance in May
The mining lease of Karnataka mines expired in October 2012. CEC has approved
and reduced the capacity of mine to 2.29mtpa (6mtpa earlier).
Environmental and forest clearance will have to be secured afresh. Forest
advisory committee will meet in May which may grant forest clearance to Sesa.
Sesa has not laid off any workers and all plant and equipments are in place. It
can start work immediately, post final approvals.
2. Goa: Stamp duty is INR200m per mtpa EC limit; High depreciation due
to 5.5 years of pro rata adjustment of stamp duty
In Goa, the lease renewal process has started, which was pending since 2007.
Stamp duty is INR200m per mtpa of EC limit, regardless of actual production.
INR1.1b of stamp duty is already paid, while another INR1.2b is yet to be paid. It
has 11.5mtpa leases in its own name for which stamp duty is applicable.
Value addition business: Pig iron pricing is facing strong headwinds and iron ore
availability is a concern. Lower quality and high price of raw materials continue
to impact profitability.
Depreciation increased due to one-time effect of 5.5 years of pro rata
amortization of stamp duty.
Management has taken deferment of salary of 10-25%.
Interest charges increased as it was unable to take advantage of lower PCFC
borrowings rate in absence of exports. It has to pay commercial rates, which
led to an increase of INR350m per annum in interest charges. Cost of debt is ~9-
9.5%.
Goodwill increased on account of year-ending exchange rate changes and
acquisition of Western Cluster.
3. Liberia: Specific capex estimated at USD80-90/t of capacity; Targeting
to end FY14 with 2mtpa
There are three areas — Bomi (70km from port), Bea (100km from port) and
Mano (140km from port). Bomi and Mano are brownfield projects, while Bea is
Greenfield.
Sesa is targeting initial production from Bomi. It will target 2mtpa capacity
initially, starting with DSO shipments. DSO shipments will give early cash flows.
It expects capex to be USD80-90/t of capacity.
4. Net addition of 59mt of R&R in India in FY13
Sesa had stopped drilling activities for R&R upgradation from September 2012.
Company achieved net addition of 59mt to a total of 433mt R&R in India, implying
20+ years mine life. 25% of 59mt increase is in Karnataka, while 75% of 59mt
increase is in Goa.
29 April 2013
4

Sesa Goa
Sesa Goa: an investment profile
Company description
Sesa Goa (SESA) has iron ore reserves and resources of
433mt in Goa and Karnataka. Goa's ore is medium grade
and easy to extract without blasting and crushing. The
iron ore from Karnataka is of high grade but found in
rocky form, which necessitates blasting and crushing.
SESA is India's largest private sector iron ore exporter.
Recent developments
Board of directors of Sesa Goa recommended a
dividend of INR0.1 per share for FY13.
Valuation and view
We value Sesa-Sterlite merge entity at INR191/share,
based on SOTP. Maintain
Buy.
Key investment arguments
Post merger, Sesa-Sterlite's earnings will be less
volatile, supported by more stable operations at
Hindustan Zinc and Cairn India.
The cost of mining and transport is significantly
lower in Goa (majority of operations) than in
Karnataka and Orissa. Further, Indian miners are at
an advantage over Brazilian due to their proximity
to China, the largest customer.
Sector view
Average iron ore prices have increased 21% QoQ in
4QFY13 due to short term tightness in the market.
The current iron ore price (63.5% Fe, Fines, CFR
China) is trading in the range of USD130-140/t. We
expect prices to correct to sub USD100/t levels due
to a slowdown in Chinese steel demand, which has
been the biggest growth driver so far for the iron
ore demand.
Key investment risks
Unexpected softening of spot prices of iron ore, led
by a slowdown in steel demand will adversely impact
earnings.
Further delay in restarting of mines in Karnataka and
Goa will hamper volume growth.
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Sesa-Sterlite
4.6
5.0
0.6
0.5
1.3
1.2
5.1
5.0
NMDC
7.2
6.4
1.5
1.4
2.4
2.1
3.4
2.8
JINDAL STEEL
8.6
7.8
1.4
1.2
2.7
2.2
7.8
6.2
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
33.6
30.9
Consensus
Forecast
30.5
33.3
Variation
(%)
10.1
-7.1
FY14
FY15
Target Price and Recommendation
Current
Price (INR)
155
Target
Price (INR)
191
Upside
(%)
23.3
Reco.
Buy
Stock performance (1 year)
Shareholding pattern - Sesa Goa (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
29 April 2013
55.1
4.2
27.5
13.2
Dec-12
55.1
4.2
27.5
13.1
Mar-12
55.1
4.8
25.2
14.9
5

Sesa Goa
Financials and Valuation: Sesa-Sterlite
29 April 2013
6

Sesa Goa
N O T E S
29 April 2013
7

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Sesa Goa
Yes
No
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