| Raising estimates on higher iron ore prices, Buy Our global team is positive on iron ore prices in CY11 & has raised spot CFR est. for FY11-12E by 4-14%. (Bulk Strategist, 11 November 2010). We raise FY11-12 EPS by 7-12% as we incorporate higher prices & lower volumes to reflect continuing export ban in Karnataka (16% of vols.) & permit delays. Our NPV based PO increases marginally to Rs398 we model slower volume growth medium term due to slow pace of mine approvals. We believe strong iron ore pricing should cushion volume headwinds. Valuations at 3.8x FY12E EBITDA & 7x FY12 PE appears to be pricing in volume concerns in our view. Buy. Positive on iron ore prices in CY11 Spot CFR is US$165/t (+12%) since Sept led by restocking in China and export restrictions in India. Our global team is cautious short term, but expects prices to move up sharply in 1H CY11 as supply struggles to keep pace with demand. Better demand & limited supply growth should pressure high cost Chinese producers to produce over 1bn of iron ore (ROM) in CY11 supporting higher prices. Our spot CFR est. are US$150/t in FY11 & US$135/t in FY12E. FY11E EPS of Rs47.4 and FY12E EPS of Rs49.2 We forecast average realizations of Rs3993/t (+11%) in FY11 & Rs4098/t (+6%) in FY12. We forecast volumes to grow 6% in FY11E to 21.8mn tons and by 10% in FY12E to 23.9mn tons. We estimate a 1% change in spot price changes EPS by 1%, while a 1% change in volume changes Sesa's EPS by 0.7%. Lowering FY11-13E volumes CAGR to 10% ( 12% earlier) Karnataka export ban continues. The court hearing against the ban is over, but verdict is pending. A positive outcome should provide relief, though sales permit delays would remain a hindrance. In Goa, approvals are on hold till Goa mining policy is approved. Also, Govt's focus on environment is likely to slow pace of approvals. | ||
Sesa Goa Limited - Raising estimates on higher iron ore forecasts
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