The purchase of an additional stake in the company has boosted the stock price.
The Sesa Goa stock has had a good run over the past fortnight or so, moving from Rs 240 on September 10 to Rs 278 on September 18 and is currently trading at around Rs 272. The reason for the move was the creeping acquisition by the promoters, Vedanta Resources. The promoters have upped their stake in the company picking a 2 per cent stake through open market purchases, taking their holding to just above 57 per cent.
Even before that the stock has risen 160 per cent between January and August with spot iron ore prices bouncing back sharply in the wake of higher pig iron production in China. The well-timed, reasonably valued Dempo acquisition in June also helped. Industry watchers point out that more pig iron was being produced in China in August — compared with growth rates of 5.5 per cent year-on-year just a few months back.
In May, the growth rate was a much higher 20 per cent. As a result, iron ore prices first strengthened but started tapering off towards end August and analysts are not too sure whether the momentum will sustain as steel prices in China have started trending downwards.
Since Sesa Goa has a large exposure to China, they are cautious about the company’s exports to that market. Sesa Goa is expected to post net revenues of close Rs 5,500 crore in the current year with net profits of around Rs 1,700 crore. At the current price of Rs 272, the stock trades at a somewhat expensive 13 times estimated 2009-10 earnings and 12 times 2010-11 earnings.
