Despite profits falling nearly 50 per cent, Sesa Goa’s stock closed in the positive territory on Wednesday. The stock closed the day at Rs 185.65, up 1.53 per cent over the previous day’s close even as the company posted a profit of Rs 648.21 crore for the March 2012 quarter, compared to Rs 1,210.38 crore in the year-ago period. Net profit for the year ended March 2012 at Rs 1,679.94 crore was less than half its FY11 profit of Rs 3,432.80 crore.
The reason for the stock price to have moved up despite a poor performance is because profits have nearly doubled over the December quarter (Rs 370.54 crore). Further, market expectation from the company was also low, given the iron-ore ban on the company in Karnataka and Goa.
Sesa Goa was able to beat market expectations on account of higher realisations. This at a time when global iron ore prices have declined by nearly 20 per cent over the last 10 months. Its realisation improved 16 per cent, thanks to higher contribution from the Goa mines, where the quality of iron ore is better, coupled with relatively lower transportation costs given its proximity to the port. Giriraj Daga analyst with Nirmal Bang says, in the March quarter, Goa accounted for 96 per cent of the company’s sales volume as compared to 87 per cent in the December 2011 quarter. This helped in blended realisation improving by six per cent over the previous quarter to Rs 5,035 a tonne (about $100 per tonne).
Contribution from Karnataka mines has fallen to 0.2 million tonnes in March from 0.7 million tonnes in the December quarter. On the whole, sales of iron ore during the March 2012 quarter were at 5.2 million tonnes, a drop of 21 per cent year-on-year, whereas for 2011-12, sales stood at 16 million tonnes as compared to 18.1 million tonnes in 2010-11. The company has added 68 million tonnes to its Indian reserves during FY12 taking total reserves to 374 million tonnes. The acquired Liberian mines are likely to start shipments beginning April 2014.
Going ahead, there are two issues which will impact performance of the stock. The first relates to mining. Though the Central Empowered Committee (CEC) has given a report on the Karnataka mines to Supreme Court, analysts feel the multiple-level clearances will delay the whole process. Sesa Goa, however, feels mining may resume by June 2012. More, renewed protest has also led to mining ban at one of its Goa mines.
The second is the recently announced group restructuring. While the merger announcement with group firm Sterlite has not gone down too well with shareholders (Sesa stock has lost more than 18 per cent post-announcement), the stock is likely to move in line with the merger ratio.