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Buy Sesa Goa – Kotak

April 28, 2008

Sesa Goa managed by Anil Aggarwal of vedanta is India’s largest private sector exporter of iron ore with mining activities in Goa, Karnataka and Orissa and also owns a prospecting license in Jharkand. Kotak has initiated coverage with a BUY recommendation ahead of the Bonus and Stock split.

Expect company to double the annual iron ore sales to 25MMT in next five years while rising 20% to 15MMT in FY09E from the 12.4MMT in FY08. Sesa Goa should be able to negotiate additional mining contract agreements in the coming years.World’s largest iron ore producer, Brazil’s Vale, has already secured 65-71 percent hike for its iron ore fines for the financial year FY08-09.

China steel industry led (~ 90% of global iron-ore trade demand growth) global iron-ore sea trade demand is expected to remain robust for coming few years. Constraint of significantly large supply is limited to the next two or three years, post which the number of large projects from all the three top mining giants would start coming online over late 2010-2013.

Kotak recommends a BUY rating with a 9-12 month target price of Rs.5335/share (offers 52% upside) based on 6x FY09E EV/EBITDA. Expected EPS for FY09 is Rs 531 and Rs 720 for FY10.

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