Re: {LONGTERMINVESTORS} Sesa Goa .....Thread
RAJESH DESAI
RAJESH DESAI
Sesa Goa says Director of Mines, Government of Goa issued orders to suspend mining in Goa, effective Sept 11
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CA. Rajesh Desai
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CA. Rajesh Desai
RAJESH DESAI
Sesa-Sterlite merger: Together in debt
· The problems relating to the iron ore business may matter less to Sesa Goa’s prospects in the days ahead. With the Vedanta group deciding to restructure its holdings in mining and metals, Sesa Goa will soon be transformed into Sesa-Sterlite, with the merger of Sterlite Industries, and will house the group’s stakes in Cairn India, Vedanta Aluminium’s Indian projects and Balco. Vedanta proposes to issue three Sesa Goa shares for every five Sterlite Industries shares held. Post-merger, the iron ore business may bring in only 10-11 per cent of the entity’s combined profits, estimate analysts.
· The merger seems to be quite a mixed bag, though it may shield Sesa to some extent from the risks of regulatory intervention in the iron ore mining business. Vedanta Aluminium, for instance, brings with it the risks of prodigious debt and the unavailability of bauxite for the refinery. Both Hindustan Zinc and Cairn India may churn out substantial cash, but cannot redeploy this in Sesa-Sterlite’s businesses as they remain separately listed companies.
· Sesa’s MD, P.K. Mukherjee, is confident that the merged entity can handle the debt efficiently. Considering the intrinsic value of the assets of the merged entity Sesa-Sterlite, the debt would be negligible. Sesa-Sterlite is expected to generate a revenue of Rs 66,431 crore and EBITDA (earning before interest, tax and depreciation and amortisation) of Rs 24,953 crore. Attributable net income works out to Rs 10,971 crore. Gross debt on the books will amount to Rs 66,717 crore and net debt Rs 36,936 crore. Given the average cost of funds at eight per cent, the total interest outgo is put at Rs 4,000 crore a year.
· After the proposed merger with Sterlite Industries, Sesa Goa’s debt profile is likely to change significantly. Moreover, uncertainties with regard to the aluminium business in Vedanta Aluminium will prevail. Cash fungibility issues will remain as Cairn India and HZL will be separately listed entities.Sesa Goa Ltd: BofA-ML maintains 'underperform' rating on the stock with a target price of Rs 162. BofA-ML has cut iron ore price forecast for FY13 to US$121/t (-10%) and FY14e US$110/t (-14%) due to recent destocking in China and modest global steel production outlook.
This leads to 6.6-9.7 per cent EPS cut for Sesa Goa's standalone estimates. Other factors which may weigh on the stock include, Goa mining ban resolution which may take longer, iron ore, Al & power assets should continue to face structural challenges and cash fungibility remains an issue
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CA Mihir Desai
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CA. Rajesh Desai