Sesa Goa: Expansion woes

Higher volumes from Goa and Orissa mines help tide over export curbs in Karnataka

Sesa Goa reported a volume-backed performance in the seasonally weak September quarter that also saw the impact of Karnataka’s move to ban iron ore exports.

Though overall iron ore production slumped to 3.2 million tonnes (mt) compared to 3.3mt in the June quarter, the company managed iron ore sales volumes of 2mt, ramping up sales from its mines in Goa, Orissa and increased spot market sales in Karnataka.

Iron ore sales volumes were 25 per cent higher year-on-year (y-o-y). Pig iron sales, too, increased in tandem.

Average iron ore realisation rose 43 per cent y-o-y to Rs 3,528 a tonne due to a 56 per cent increase in the spot price, though a large share of lower grade ore in the sales mix was a drag, according to Motilal Oswal.

The company clocked top line of Rs 918 crore in the September quarter, translating into growth of 70 per cent y-o-y. Seasonal factors pushed up the transportation cost to Rs 1,326 a tonne compared to Rs 635 a tonne in the June quarter.

However, net profit grew 129 per cent y-o-y to Rs 389 crore, aided by lower tax outgo and forex gains of Rs 36.4 crore.

As Karnataka export curbs still continue, the company plans to compensate this with higher volumes from its Goa mines. The Dempo iron ore assets (acquired in June 2009), having contributed 1.5mt in the first half, are expected to partially compensate for the loss from Karnataka, say analysts.

Sesa Goa plans to increase volumes to 50mt per annum and is taking steps to increase mining and logistic capacities. However, the delay in getting statutory clearances to expand offtake poses serious challenges. Another key concern is diversification into an unrelated business through purchase of 20 per cent stake in Cairn India. The stock ended 3.6 per cent lower at Rs 358.8 on Tuesday over its previous close and trades at an EV/EBITDA of 4.5x and for FY11 and of 3.2x for FY12 according to analysts.