Sesa Goa Up at record New High at Rs 494…More upmove potential…..but Sensex Down 256 points to 17714

After kissing 18000 yesterday after a two year gap,the Sensex dropped 256 points today to close at 17714…it was in the red right from day’s start at 9 am till close at 3.30 pm

But Sesa Goa surged to a record high of Rs 494+ and closed a few notches lower at Rs 490….I’ve been recommending this scrip vigorously from mid 2008…and I believe it’s positioning itself beautifully to move to record highs again in the months ahead…I will not be surprised if it crosses the four digit quote of Rs 1000 in the next 12 months

What’s so exciting !?….Iron Ore Prices are at sustainable Highs of over US $ 100/t

Sesa Goa should double it profits and make more than a US $ 1.25 Billion  Dollar Profit in FY 11

Japan has committed to buy Iron Ore on Long Term Contracts ( now quoted for quarterly periods) from the World majors Vale,Rio Tinto and BHP Billiton at a price 90% higher than last year !…that’s close to US $ 110/t…..Chief Buyer,China is negotiating and is expected to pay 80% higher prices than last year……Sesa Goa sells it’s Ore in the Spot Market and is currently realising over US $ 130/t

Sesa Goa has recorded a 59% jump in Q4 Volumes,with saleable ore of  7.8 million tonnes in the three months ending March 31,2010….Profits were just over Rs 1100 crs for the nine months at December 2009…Q4 will be fabulous on better realisations and I expect FY 10 to close with a PAT of over Rs 2500 crs…on a diluted equity of Rs 90 crs,the EPS should be in the Rs 25 to Rs 30 range…The Share Price of Rs 490 gives a P/E Multiple range of 16 to 20 on FY 10 expected EPS range….but the great expectations are for FY 11…read below  

Current Equity is a shade over Rs 83 crs (FV Rs 1) and fully diluted Equity would be Rs 90 crs after rest conversion of the FCCBs…5000 FCCBs of FV US $ 100000 each,were issued in late 2009 aggregating US $ 500 Million…Till date 1637 FCCBs have been converted at the pre-ordained price of Rs 346+

Next two Years look good for the Iron Ore Industry as China’s demand will not ebb as it’s Steel Production targets are high…..In FY 2011,Sesa Goa would have saleable ore between 20 to 25 million tonnes…assuming they realise an average of US 110/t in the year,the net margins after extraction and royalty costs would yet be strong at US $ 70+/t…that’s Rs 3000/t…that’s Rs 6000 crs for 20 million tonnes and Rs 7500 crs for 25 million tonnes…that’s a potentially high EPS range of Rs 67 to Rs 83 in FY 11…at a 10 to 15 multiple applied to the extreme ends of the EPS respectively,you’ll arrive at a target Share Price Range of Rs 670 to Rs 1245 !…we’re at Rs 490 levels now….so we’re looking at a minimum 40% upmove from here and a potential doubler + in the next twelve months

Keep an eye on the Iron Ore Realisations in the coming months….Atleast 20 million tonnes is a certainty……and if Sesa Goa average realisations at more than US $ 110/t,like it’s doing presently,then I may just have to revise the target price northward again ! 

One way of looking at Sesa Goa is also this…there is little downside risk even at this record high of Rs 490…Even if the FY 11 PAT is lower at Rs 4500 crs giving an EPS of Rs 50,the multiple remains below 10

Sesa Goa continues to look solid as there is strong certainty and visibility of potentially high FY 11 earnings as Iron Ore Prices are expected to remain in three digits per tonne in dollar terms….Now if only if the Rupee reversed and depreciated and goes back to Rs 49/Dollar..It’s gained and is currently appreciated to below Rs 45….it will be the icing on the cake for Sesa Goa…a 5% depreciation would mean Rs 500 crs more !

Sesa Goa’s current Market Cap has crossed Rs 40000 crs…that’s US $ 9 Billion !…over 8 times last Years Sales of Rs 4779 crs…and over 7 times FY 10 expected Sales of over Rs 5500 crs….and half the market value of Proven Ore Reserves of 180 million tonnes !  

Cheers !      

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