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Sunday, December 21, 2008

Sesa Goa - Investment update from ICICI brokerage house

Sesa Goa enjoys huge cash (around Rs 45/share) and is significantly deleveraged in near mid term, implying low downside. ICICI Securities brokerage house have provided targets for investment with these considerations.

Reco price: Rs 78
Current market price: Rs 84.5
Target price: Rs105
Upside: 24.3%
Brokerage: ICICI Securities


Declining global and Chinese steel demand has led to a slowdown in iron ore demand. In fact, there is around 60-70 per cent dip in Chinese spot iron ore prices along with decreased off-take has meant that there is a 70 million tonne iron ore inventory build-up (equivalent to 50 days). Consequentially, global majors have cut production by 10-25 per cent, thereby pressurising Indian iron ore exports. This scenario, would affect Sesa Goa (Sesa) whose domestic sales comprise six per cent only. Increased inventories, low off-take and reduced spot activities put to risk aggressive management expectations of sales ramp-up to 15 million tonne by FY09E.

Sesa’s total estimated reserves are at around 180 million tonnes from mines in Goa, Orissa, Karnataka and Jharkhand. The company had obtained prospecting licences for mining in Jharkhand with total reserves of more than the earlier estimated 50 million tonne of high-grade reserve content. While most small-scale miners are unprofitable owing to declining prices and high transportation costs, this would help the company increase its market share. At Rs78, stock is trading at FY09E and FY10E P/E of 1.5x and 1.8x, and EV/EBITDA of 1x and 1.1x, respectively. Besides, Sesa Goa enjoys huge cash (around Rs 45/share) and is significantly deleveraged, implying low downside.
Source: Business Standard
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