SESA INDUSTRIES….Unlisted but worth Rs 1600+…..much more than Rs 675 being offered

On November 1,2009 I had warned shareholders of the unlisted Sesa Industries to think twice before selling their shares on offers of Rs 600 per share

Unlisted Sesa Industries has buyers off market at Rs 600…but should you sell ? NO!…It’s worth much more 

Now offers are at Rs 675…..Please think again Twice before selling in private deals…It’s worth much more….You will be getting 4 Sesa Goa shares for every 1 Sesa Industries Share….Sesa Goa is currently at Rs 410+…Thus your Sesa Industries Share is worth Rs 1640 ! already…it will climb higher if Sesa Goa climbs higher….A recent BOA-ML report sets a target price of Rs 472 for Sesa Goa

Legal Issues…matter is in the Supreme Court….has delayed this merger for some years now…This year or next should see this issue resolved  

Sesa Goa at Rs 315……Careful you don’t step on some ‘Mines’!

Ashish has raised a very serious query whether Monies are safe Investing in Sesa Goa for a year,given the controversies surrounding the Vedanta Group….Sesa Goa has reacted from a recent high of Rs 362 to Rs 315 and there is a real fear it may soon move below Rs 300 in the short term….significantly so

So what are these adverse developments? Remember these were out,except for the last one below, in end Feb 2009 and the markets and Sesa Goa had sunk to lows…Sesa Goa was available at just Rs 60…Inside eight months it touched Rs 362 and is now Rs 315

  • Vedanta Aluminium Ltd has been accused of falsely encashing a Bank Guarantee of Rs 64 crs provided in 2007 by Maytas Infra when signing the MOU to develop a Rs 232 crs township in Jharsuguda in Orissa…a Police Investigation is on
  • In February 2009,a division bench of the Mumbai High Court in Goa set aside a December 2008 single bench sanction for amalgamation of subsidiary, Sesa Industries with Sesa Goa on the grounds that the Scheme was in violation of the mandatory provisions of  Sec 394 of the Companies Act.The appellant,a shareholder of Sesa Industries, told the court that Sesa Industries had suppressed information to shareholders that an investigation was going on against the company and it even had an adverse report against it ,when applying to the court for sanction of the Amalgamation Scheme in 2005/6.Sesa Industries has filed a Special Leave Petition in the Supreme Court against this order
  • S K Tamotia,ex chief of Nalco was sentenced to three years in prison for corruption and holding disproportionate assets.It was a CBI case that related to his tenure at Nalco.After exiting Nalco he held top positions at Hindalco and the Vedanta Group
  • THIS IS THE MOST SERIOUS ONE AND REMAINS UNCONFIRMED…A recent message posted on a popular stock site claimed Zee Business featured recently the possibility of malpractices in Sesa Goa right from 2003…underinvoicing to Mitsui…overstating revenues and profits…it also claimed ROC has send a report to the Government of it’s findings….I went to the Zee Business section of the Zee News website ,but was unable to locate any such coverage….I again reviewed the Annual Reports of 2008/9 of both Sesa Goa and Sesa Industries…. and confirmed that the auditors Deloitte Haskins & Sells have given clean reports….Sesa Goa even has a whistle blower policy in place…ROC comes under the Ministry of Company Affairs and can be directed to conduct an investigation by the Serious Frauds offices or the MRTP sections of the MCA….There is no mention of any such investigation in the Annual Reports….I’m sure the auditors would have qualified their reports if there was any such adverse report and it impacted their opinion of ‘true and fair’ for the financial statements…As per Clause 49 of the Listing Agreements,the CEO/CFO Certifications too are in place in the Annual Reports…..also recently the group has announced it is raising Rs 6000 crs beginning with a US $ 500 Million FCCB Issue…this is being managed by Goldman Sachs and Morgan Stanley…would you not assume they would have done their due diligence before accepting the assignment ? 

However Sesa Goa realises the business and operational challenges it faces.It has been quite candid in it’s Annual Report on these…of

  • trying to secure more mining assets to secure it’s growth…it had 240 million tonnes reserves at March 31,2009
  • positioning itself in the spot market and leveraging with specific Chinese Importers as the three bigges,Vale,Rio Tinto and BHP Billiton,who control 70% of the sea borne iron ore export,concentrate more on securing long term contracts
  • continuing to operate in a market of depressed demand and prices in the short to medium term

Interesting to note it had Rs 1000 crs in intercorporate deposit with group company Vedanta Aluminium…the same company accused by Maytas Infra of falsely encashing a ICICI Bank Guarantee of Rs 64 crs…and interesting to also note that subsidiary,Sesa Industries earned Rs 58 crs in 2008/9 and had a networth of Rs 284 crs(net of deferred tax) and Investments jumped from Rs 92 crs to Rs 147 crs,of which Rs 104 crs have been moved to just the Growth Option of the ICICI Prudential Flexible Income Plan Premium  

Having said all this,I must advise you for the short term to fall back on the old but trusted adage of ‘When in Doubt,Stay Out’…so avoid Trading or Investing in Sesa Goa…Ashish,a year would qualify as  short term.….await further developments and I hope the Company comes forward soon and loud in clarifying on these adverse reports

Those who are considering an Investment in Sesa Goa for the Long Term…hold the ‘Buy’ decision until doubts are cleared and the share price declines to less riskier levels and the road ahead is cleared of any possible ‘Mines’ for this Mining Major

Those who already hold Sesa Goa for some time now are already in a ‘ good gains situation’….take some (long term holdings) or all (Short Term positions) of the profit…those who are conservative to moderate in their risk profiles and hold a Long Term Position,it would be prudent to book all gains….treat it as a rebalancing exercise 

The toughest call is those who hold Sesa Goa and have purchased it at recent highs…if you’re holding it for the short term,prudent to exit,even at a loss….if you’re holding for the long term,check your risk profile and if you have the conviction in the Sesa Goa story and are not going to sweat on price declines in the short term,you should continue holding and if the share price declines significantly, maybe consider averaging if your conviction remains unshaken   read more

Sesa Goa…Low PAT in Q2 FY10 scares Brokers….why?

Sesa Goa just declared their Q 2 FY 10 results….Consolidated Profit was down 51% from Rs 337 crs in Q2 FY 09 to Rs 166 crs….Revenues have tumbled too by 38% despite Dempo consolidation

Iron Ore realisation in Q 2 FY 10 was a shade below US $ 51/MT…same quarter last year it was US $ 108

Brokers have been quick to change advisories from Buy to Sell or just Hold…..Methinks this paranoia is the inability to see beyond the nose and down a few years…I’m seeing two to three years ahead….

Company has passed at the EGM on October 20,2009 a plan to raise Rs 6000 crs.US $ 500 Million has already been announced through FCCBs with a coupon rate of 5% payable half yearly in arrears and conversion option into equity at Rs 346.88 being 28% premium over base price taken of Rs 271…This will raise close to Rs 2400 crs

The dilution in Equity will merely be under Rs 7 crs for this FCCB…so the current Equity (FV Rs 1)of Rs 82 crs will move to Rs 89 crs and share premium will incrementally add Rs 2300 crs + to reserves…so assuming the Company maintains consolidated profits at Rs 2000 crs (Iron Ore is currently at US $85/90 /MT) we shall have a networth close to Rs 9000 crs at March 31,2010 up from Rs 4716 crs as at March 31,2009….so the Book Value will be @ Rs 100

Even if Sesa Goa raises the remaining Rs 3600 crs + through Equity at the same conversion,the Equity Dilution would be just another Rs 10 crs…giving a possible final Equity of Rs 99 crs…So suppose even in FY 11 the PAT is maintained at Rs 2000 crs,the Networth at March 31,2011 would be over Rs 14500 crs,giving a Book Value of close to Rs 150

Equity Route is recommended because the additional dilution of Rs 10 crs and a maintainable PAT of 2000 crs would mean a downward impact of just Rs 2 to Rs 2.5 on the EPS and on a 15 multiple that would mean a downward impact of not more than Rs 30 to Rs 40 in the Share Price

Now Believe me,with the new funding of Rs 6000 crs,the scale of operations will simply double…so we shall see close to 50 million tonnes annually by 2012

Extent of Profitability will depend solely on continuing Demand from China…this will continue to dictate Iron Ore Prices…Sesa Goa has simply no control here…..Now with China on the verge of returning to double digit GDP growth I don’t forsee any demand issues for the next to to three years…and therefore Sesa Goa would be able to pass on the incremental royalty it now has to pay…for example on Iron Ore with a Fe content of 65 % +from a fixed low amount of Rs 27/T earlier to 10% advalorem basis on adjusted Sales Price FOB…..that’s more than a ten fold jump…..I have blogged on this change earlier on August 12,2009……so I guess the PAT too will move past Rs 3000 crs and towards Rs 4000 crs with Iron Ore Prices hovering around US $ 100/MT…so that’s an EPS in the range of Rs 30 to Rs 40 by FY 12…on a 15 Multiple that’s a Price Range of Rs 450 to Rs 600 inside two years….Now if Iron Ore demand surges,so will the price…. and we can yet again see highs of US $ 140/MT….Sesa Goa will then be able to cross Rs 6000 crs PAT…That’s a EPS of Rs 60…and a price of Rs 750 on a 15 multiple read more

Sesa Goa !….. Blog Readers who acted would have benefited immensely…468 % returns in seven months !…I bet you’ll waiting for which is my next ‘Sesa Goa’!

I’ve been backing Sesa Goa …but when it fell dramatically to Rs 60-70 in March this year,I cried hoarse to bring in more funds to add to holdings

Then on June 17,2009,I reiterated to Stay with Sesa Goa https://www.gauravblog.com/?p=601 and add on declines …it was Rs 200 then

Then on August 12,2009 I reassured bloggers that the increased Mining Royalty will be absorbed well by Sesa Goa and they would make monies on increased volumes https://www.gauravblog.com/?p=658 and the 10% correction to Rs 228 that day should not worry investors

Sesa Goa surged 18% yesterday to close strong at Rs 341…This is a  fantastic return of 468 % from the March low of Rs 60….all in just seven months !

And for all those who bought it mid last year cum 1:1 bonus and 10:1 split have made a 100 % profit on the adjusted price of Rs 160-Rs 170

I bet all of you are itching to know when I’ll hint my next ‘Sesa Goa’ type of recommendation!…In Feb,I hinted Firstsource Solutions at Rs 9…..It’s up over 275 % at Rs 34 now ! Clients ofcourse have the privileged and prior access to my stock ideas and me

Fundamentals and Valuations rarely let you down over the longer term

Why don’t you’ll seriously consider joining my advisory…make no promises….let the performance speak for itself….but don’t expect three digit returns in three days !……the link is at the top of pages on the right

Cheers !

Sesa Goa sinks 10% to Rs 228 as Government finally announces Higher Mining Royalty…Worried ?

This Blog Piece is to address the responses of Madhu and P P Jain…welcome Jain…this is the first time you’ve taken the trouble to respond

The New Mining Royalty Policy……It was awaiting Ministerial Approval………10% Mining Royalty on Market Prices before Freight…a move away from a Flat Rate based on Weight

Today,the Ministry finally went by the recommendation of a specially constituted panel of 2007 to impose a higher Royalty rate of 10% and change the basis from weight to Market Price

This announcement had been expected for a long time now…but when it came it sunk Sesa Goa’s Share Price by 10% this morning…It closed at Rs 228

This Rationalisation of the Royalty Policy was part of the 100 Days committment of the UPA Government…it had proposed to adopt wherever possible the advalorem basis

The Last Policy was notified on October 14,2004 and for three years,no change would have been possible…The Study Group formed in 2007 gave their recommendations to the Ministry of Mines in October 2007…However this recommendation was delayed as Global Recession set in and Iron Ore Prices weakened considerably

Under the Old Flat rate Royalty Policy,the highest Rate was Rs 27/T for Iron Ore Lumps that had 65% Fe Content or more

Now under this new market FOB Price,less Transportation and allied costs to Ports,the Royalty will be 10% of the Adjusted Sales FOB Price

From April 2009,the CIF price to China has doubled to US $ 110/T….Adjusted FOB would range between US $ 60 to US $ 80…that’s Rs 2800 to Rs 3800 per Tonne…10% Royalty would range between Rs 280 to Rs 380 per tonne…that’s over a ten fold jump from the earlier Policy basis  

Should we be worried ?…Madhu and Jain queried for my comments….well it will surely affect export competitiveness

Sesa Goa sold over 15 million last last year and has ambitious plans for volumes ahead…50 million tonnes in three years….so we can estimate that incremental  Royalty payments for Sesa Goa will start to be in excess of Rs 400 crs….Though Iron Ore Prices are again rising,the exports market remains competitive and the risk is that Sesa Goa may not be able to pass on the entire incremental to China,it’s major market…Sesa Goa earned  a shade under Rs 2000 crs PAT in FY 09…thus the immdiate impact looks to be 20% of profits

Having said this,Sesa Goa could absorb this on rising volumes and rising Iron Ore Prices read more

Sensex Beating Stock Select Portfolio Performance in under Three months

From our Stock Watch of over 300 Scrips these 16 are our Stock Select releases or re-releases on May 4,2009 for as Portfolio Ideas…These are based on Fundamentals and the idea of putting them on this Blog is to assert that even if you were anti-equity and ignored the March 2009 Lows and Sensex of 8000,you could yet have entered beginning May 2009 at Sensex levels of 11500 and made some good returns

No

Company

Opening Value

May 4,2009

in Rs

Current Price

July 21,2009

in Rs

Gain / Loss

in Rs

Gain / Loss

in %

1

Aftek Ltd

9.22

15.35

6.13

66.49

2

Ahmedabad Steelcraft Ltd

15.35

14.17

-1.18

-7.69

3

Allahabad Bank

52.50

84.95

32.45

61.81

4

Bharat Heavy Electricals ..

1651.75

2220.35

568.60

34.42

5

Dena Bank

37.10

52.50

15.40

41.51

6

Grasim Industries Ltd

1778.40

2772.00

993.60

55.87

7

GVK Power & Infrastructur..

38.50

43.15

4.65

12.08

8

IFCI Ltd

25.15

50.50

25.35

100.80

9

Infrastructure Developmen..

76.45

140.60

64.15

83.91

10

Jaiprakash Associates Ltd

138.80

222.25

83.45

60.12

11

Lanco Infratech Ltd

334.05

381.15

47.10

14.10

12

Larsen & Toubro Ltd

879.55

1456.70

577.15

65.62

13

NIIT Ltd

32.00

60.65

28.65

89.53

14

Reliance Industries Ltd

1802.70

2029.60

226.90

12.59

15

S.Kumars Nationwide Ltd

25.15

39.30

14.15

56.26

16

Shree Rama Multi-Tech Ltd

3.79

5.14

1.35

35.62

 Some Observations and Comments

  • In less than three months,the performance of most have been very good…Nine of the Sixteen have surged over 50%…The seven  that have not ,have also seen a surge from March 2009 lows and their northwards movements have decelerated from May
  • GVK and Lanco were recommended on May 21,2009 and NIIT on May 19,2009…all the others were May 4,2009…Opening Prices are as on the date of Reco  
  •  It do not include Sesa Goa,which has been our front runner for a long time now.It currently trades at Rs 230+ ,up near 300 % from March 2009 Low of Rs 60…Last year we had again recommended it at cum bonus and split price levels of over Rs 3000,translating to ex split and ex bonus price level range of  Rs 150 to Rs 165…we reiterated the recommendation several times at every significant decline 
  • It also does not include Firstsource Solutions recommended at Rs 9 and then at Rs 14 in Feb 2009…It now is Rs 22,after seeing a high of Rs 30 recently
  • It does not include Punj Loyd too as this was pursued vigorously in March 2009 at levels close to Rs 100…It’s doubled since them
  • IFCI has doubled and IDFC and NIIT have been near doublers
  • Even the Four Core Scrips,Grasim,BHEL,Larsen & Toubro and Reliance Industries,which have a high Percentage of Portfolio Weightage have performed very well….Of these BHEL,Larsen and Reliance have been re-recommended several times in the past two years…All have been doublers from early March 2009 
  • Only one scrip,Ahmedabad Steelcraft has yet to perform…It had gone upto Rs 20 though a while ago  and has seen a high of Rs 27 last year 

Don’t ask me why I have recommended these or could you yet enter them at these current levels if they have not reached target prices ! My Clients would kill me if I blog free what they pay me for !..But you could try and read between the lines and research these yourselves ! I did cover some of them in my Workshops

And a word of caution…..You must Invest as per your Profile….Many of the above scrips may not suit your Profile…for instance a Conservative Investor in Equities would concentrate only on the Core Scrips and would never Invest in Aftek or Shree Rama Multi-Tech !,no matter how insignificant the exposure would be !…On the other hand, an Aggressive Investor would seize even an event based opportunity even if it was contingent in nature , and therefore more riskier ! 

However I can say this…..any Portfolio created or expanded on May 4, 2009, with Scrip Selection and Weightage based on Investor profile,  from the above  would have registered a strong performance in under three months…in all probability,over 50% as Nine of the above scrips have surged 50% + inside three months….In the same period the Sensex has notched 30% , moving from 11600 levels to current levels of 15100

So a stock selection based portfolio,rather than an Index Fund or Sensex weighted Portfolio  would have nearly doubled your returns over those of the Sensex…..The Magic is to demonstrate consisitency in beating the Sensex over longer Periods….Many,like John Bogle of Vanguard believe in Index Investing only,while Warren Buffett’s Berkshire Hathaway has shown that over 44 years their Portfolio returns are simply mindboggling over those of the S & P 500….Even the CAGR is more than double…S& P is less than 9%,while Berkshire Hathaway is over 20% !…In absolute terms there is absolutely no comparison ! S & P is a shade over 4000 % while BH is over 300000 %  over 44 years from 1965 !

So best of Luck in searching for those Stocks that will  catapult you into stardom ! Rakesh Jhunjhunwala had the conviction in Crisil and Praj and Titan !…Matrix and Mercator have made Millions for many of My Clients a few years ago…a few even retired in their 30s and 40s,but have since returned to work as their Wives simply cannot tolerate them being at home all day !…Oh ! we do suck Lemon too…in the late 1990s it was the Damania Group that let us down…..In 2006/7 Silverline was one such Lemon..lucky we got out in time…a decision I took after an unconvincing meeting with the Promoter after we had believed in the restructuring story…I’ll leave a few others Lemons for some other Day ! read more