Stay with Sesa Goa…even Accumulate it on Declines….Very Ambitious Plans ahead

50 Million Tonnes sales in three Years Time…that’s Sesa Goa’s ambition…It’s doing just under 20 Million right now…More on this later

When Sesa Goa notched a record Profit of Rs 633 crs in Q1 of FY 09,I was excited and expected the Company to cross Rs 3000 crs PAT in FY 09….However as the Global Financial Crisis erupted and China stopped importing ,there was a steep decline in iron ore prices from high FOB levels of US $ 140/T to US $ 50 to 60/T….Sesa Goa managed to report just under Rs 2000 crs as PAT for FY 09 and thus posting an EPS of Rs 25..It’s reserves were just over Rs 4500 at March 31,2009 and with Equity at Rs 78.7 crs (FV Rs 1) the Book Value nudged Rs 60…..So when it declined to Rs 60 it was a screaming Buy   

Last Year in July 2008,I had blogged strongly for Sesa Goa to buy it at Rs 3300 Cum 1:1 Bonus and Cum 10:1 Split…That’s an adjusted price of Rs 165…It opened strong at Rs 175 ex bonus and ex split in August 2008….but then dropped sharply to even fall to Rs 60…I recommended adding to it…Even if one did not,the purchase is back in the money now

After crossing Rs 200 earlier this week,after it announced that it had bought out Dempo Goa’s Goan Mining Operations in an all cash deal of Rs 1750  crs,it has corrected to Rs 194 today as I blog

The Future continues to look pretty interesting…I heard the recent conference call with Sesa Goa’s CEO,Mukherjee and the CFO,Sushil Gupta

I’ll spare you all the technical details of Ore grades and reserves and resources……What caught my ear was Mr Mukherjee ambitiously talking about 50 million tonnes in three years !…They did just under 20 million for FY 09 (15.1 M in Sesa Goa and 4.4M in Dempo) and earned a net aggregate of near Rs 2300 crs,depsite low iron ore prices…50 Million Tonnes should then fetch them over Rs 5000 crs…and much more if the prices of iron ore rise again and the rupee continues a downward bias against the US Dollar….you could view volatility in iron ore prices and the US $ currency as risk factors… .I dont see Prices below US $ 40/T……Without any further equity dilution than the small preferential allotment to promoters at Rs 172,the EPS will cross Rs 60….so in three years the Share Price is an easy double from current levels of Rs 200…this would be gains of 26% CAGR for three years…Reserves will cross Rs 12000 crs to give a book value near Rs 150…The Company has no financial leverage and I don’t expect it to in the near future as internal acrruals are more than adequate and infact are creating great surplus…it had nearly a Billion Dollars in cash at March 31,2009…nearly 40% of it  has been applied to buy out Dempo Goa…More acquisitions should follow

So it does make sense to not only hold Sesa Goa in your Portfolio but also accumulate it further on declines for a three year hold.

10 thoughts on “Stay with Sesa Goa…even Accumulate it on Declines….Very Ambitious Plans ahead

  1. Hi Gaurav. Thanks for the analysis. Future plans are big and business model is fine. But please throw some light on

    Corporate Governance, Promoter’s commitment & Ethics,
    Transparency in Reported Earnings.

    Sorry but before investing in any company these are the first companies I look for.

    Awaiting your help.

  2. Hi GAP

    First I would like to congratulate you on your blog. It is a pleasant change from verrbose TV commentators and our dubious brokers.

    Do you also track Compact Disc India? Any comments on it.

  3. Hi Nitin,Sayantani and Kamal,

    Nitin…..Sesa Goa has soared from a low of Rs 60 to cross Rs 200..It’s 180 now…let it retrace some more and then begin accumulating towards Rs 100…doubt if it falls again below this level…If you want to buy 500 then buy 100 now and 100 every Rs 15-20 fall…you normally must average upwards but in this situation even downwards is warranted as the price will recover in the longer term

    Sayantani…what a lovely name !…you’ve hit the nail on the head…when Anil Agarwal of Vedanta took over Sesa Goa,there were reservations on Transperancy,Ethics and misuse of Sesa Goa Cash…That’s why the risk premium is higher here and it’s not all due to iron ore price volatility….I daresay most Indian listed companies will fail your strict criteria !

    And Kamal….thanks for your Certificate of Approval…all your ‘Dua’..Come on! not all on TV and not all Brokers are bad !…some are part of our Human Race !

    I don’t have an updated opinion on Compact Disc…I will check it out though

    Cheers to all of you

  4. HI GAURAV
    HOW ARE YOU? WELL GOOD REASONING ON SESA GOA. FULLY AGREE WITH YOU ON SESA GOA. U HAVE ACUMEN TO HINT AT GREATER PICTURE AND BETTER OPPURTUNIY.
    JUST NOTED AN INTERSTING POINT IN CLASSIC DIAMOND ITS BOOK VALUE IS Rs 56/ AND SCRIP IS TRADING AT Rs 16/ SO ON P/BV ITS A MUST BUY THOUGH DIAMONDS AND EXPORT SEC IS NOT DOING WELL CURRENTLY BUT 2 YRS FROM NOW WAT THE FUTURE MIGHT BE? ISNT IT WORTH TAKING THE RISK? AWAIT UR ANALYSIS/ RESPONSE.
    THANKS AND ALL THE BEST FOR U AND UR FAMILY ESP THE KIDS

  5. Nice to hear from you again Dr Sudeep…..taking time off from patients ! ….Classic Diamonds has Classic Issues…soin this case the markets might not be inefficient in pricing it so low…let me check though…i’ll blog it so others benefit too…Cheers

  6. HI GOURAVJI,

    WELL ON UR IDEA I PURCHASED SESA GOA 170 SHARES AT A PRICE OF Rs 191.37 FOR LONGER RUN, WELL DAILY I AM VISITING UR WEBSITES, U R HAVING WONDERFUL KNOWLEDGE OF EUQITY AND FINANCIAL ASPECTS, THANKS FOR A WONDERFUL WEBSITE.

    REGARDS

  7. Hi Pankaj,

    I hope you plan to buy some more on declines…as the advice was to accumulate on declines…check out my reply to Nitin

    However don’t worry even if Rs 32K is the maximum exposure you’re taking in Sesa Goa and you don’t plan to average on declines…but have patience and temperament to stay with Sesa for a year or two atleast…It’s slipped to Rs 180 today…Concerned Minister in the new government has announced that he plans to change the royalty payment percentage and basis for iron ore…increase the % and change the basis from a low fixed price set last in 2004 to the selling price….Miners should be able to pass on the cost and it will only raise the price of Steel..so impact on Sesa Goa should be minimal

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