Tuesday, April 14, 2009

Sesa Goa - Buy

Sesa Goa Reco price: Rs 107 Current market price: Rs 112.2 Target price: NA Brokerage: Edelweiss Securities Macro indicators such as purchasing managers’ index, fixed asset investment and loan growth are pointing to a turnaround in the Chinese economy. Financing of the RMB 4 trillion stimulus programmes is underway and expect actual demand for steel to commence within the next six months. China’s incremental steel demand is estimated to be 110 million tonne (MT) over two years and in near term, it could rise 15 per cent in H2 CY09 over H1 CY09. There are concerns regarding looming oversupply and high inventories. Top global players alone have added or will add 210 MTPA of capacity over the next two years (around 26 per cent of CY08 demand). However, most of the pain is over for spot prices with no major downside from current levels. Sesa Goa, which produces iron ore, has seen its market share in Indian exports increase from 10.8 per cent in FY07 to 14.5 per cent in 9M FY09, underscoring its leadership position. The management is looking to add 500 MT in iron resources over the next two-three years; exploration in existing mines has already indicated higher resources. Withdrawal of export tax on iron ore fines has improved the company’s margins significantly. The estimates for FY10 are being revised upwards on the basis of strong volume growth and rupee depreciation. The DCF valuation additionally factors in potential increase in royalty to 7.5 per cent from FY11E and works out to Rs 129 per share. The brokerage has upgraded its recommendation on the stock to ‘buy’, from ‘reduce’ earlier. Smart Investor BS 12-04-09 Our view : This is an aggressive stock YH = Rs.221 and YL = 61 Short term : Target Rs.150 Recommended Buying Price = Rs.100 Recommended Selling Price = Rs.150 Long Term : TP = Rs.200 for a 12 months holding period Bought to you by : Intelligent Investor Investment Advisory division of Ravina Consulting www.ravinaconsultants.com BANGALORE 560048 Follow us www.twitter.com/SmartInvestor