3QFY11 EBITDA was 1% below expectations. Sesa's plans to raise output in Goa from 20mt to 40mt have been halted due to a delay in finalising the state mining policy. Iron ore prices remain robust and are nearing all-time highs. We raise FY11F EBITDA by 5%. Maintain Buy with a new target price of Rs417/share.

3QFY11 EBITDA was 1% below our estimate
3QFY11 net revenue came in at Rs22.3bn (+147% qoq and +20% yoy), driven by volumes as well as strong realisations. Sales volumes were 5.4mt (+169% qoq and -21% yoy) while average realisation was US$86/t (+13% qoq and +58% yoy). EBITDA was in line with our expectation at Rs12.3bn (+306% qoq and +19% yoy).Net profit of Rs10.6bn (+177% qoq and +29% yoy) was better than we expected due to higher other income.

Karnataka exports may restart soon; would add 4mt of volumes
The Supreme Court last week asked the Karnataka State Government to either notify rules to curb illegal mining or allow exports, and categorically stated that a complete indefinite ban cannot be implemented. Sesa Goa produced 4mt from Karnataka in FY10, most of it exported. Resumption of exports would be positive and aid volume growth.

Several positive and negative events may converge in the next few months
Over the next few weeks and months, Sesa could witness a spate of events that would make for a rocky ride. The potential negative events include: i) passing of the new MMDR act, which if implemented in its current form of 26% profit sharing could impact our fair value by Rs49/share or 12%; and ii) an increase in export duty on fines from 5% to 20%, which could impact our fair value by Rs32/share or 8%. On the positive side, i) Karnataka export resumption could add Rs79/share or 19%, while ii) passing of the Goa mining policy could allow a capacity increase from 25mt to 40mt. We raise FY11F EBITDA by 5% on the back of strong realisations. We have valued Sesa Goa on a SOTP basis and have assumed completion of the pending Cairn India acquisition in our forecasts. We have revised our target price to Rs417 from Rs414 earlier following our forecast revisions. Maintain Buy.