SESAGOA : BUY ON EVERY DECLINES

Scrip Code : 500295 /SESAGOA

CMP : Rs. 367.10 ;Buy at current levels & in every dip.

Traget : Rs. 380 - Short term ; Long term - Rs. 480.

Market Cap : Rs. 31,559.68 cr.

52 Week High - Low : Rs. 274.7/Rs. 490.8.

Book Value : Rs. 86.75 ; Face Value : Rs. 1.00 ; EPS : Rs. 31.83 ; Divd : 325.00 % ; Total Debt : Rs. 1992.80 cr ; Enterprise Value : Rs.397.59 per share ;

Total Shares : 859702559 shares; Promoters - 479113619 shares - 55.73% ;Total Public holding – 99510958 shares – 11.58%

SESA GOA is a best bet in medium to long term at current price as company is rapidly churning free cash flows on the very fluctuating iron ore prices. There’s an estimate of 3.4 cr tonnes of iron ore mining in FY12, which is much lower estimate then management’s guidance of 5 cr tonnes which implies a volume of 31% CAGR in FY10-12. This volume upside would make cash flow rising despite of falling commodity prices.

On the basis of Discounted Cash Flow analysis Sesa Goa current valuation in an long term iron ore realization comes at $47/tonne.

Now, on CAIRN VEDANTA DEAL, This acquisition will cost over US $ 9 Billion of which Sesa Goa will invest from its cash resources US $ 3 Billion for a 20% stake…. This will be shown as an Investment in the Books of Sesa Goa. (20% of cairn comes to 37.95 cr shares at Rs.355/sh i.e. Rs.13471 cr).

Now, on 31st March 2010

Networth of Sesa Goa was Rs.7209 cr. (Eq Rs.83 cr + Reserves Rs.7126 cr).

Fixed Asset Rs. 580 cr

+ Investments Rs. 5479 cr

+ Net Current Asset Rs. 3076 cr

– Loans Rs. 1926 cr

TOTALS – Rs.7209 cr.

The Deal is expected to be done by early Fy 2011

So after the deal on March 31, 2011 , Sesa Goa’s Networth has to climb from Rs 7209 crs to atleast Rs 15000 cr. The Assets Side would reflect Fixed Assets of Rs 600 crs + Investments of Rs 13500 crs atleast + Net Current Assets of Rs 1000 crs .Sesa Goa will hold 37.95 crs shares being 20% of Cairns India’s Equity…. thus will receive Rs 190 crs as Dividend assuming Rs 5/share Dividend by Cairns…. It has Invested atleast @ Rs 13500 cr, so the return on Investment is a 1.40% being the Dividend Yeild!….

The book value of Sesa Goa will be around Rs.174.50. EPS- Rs. 88-90. EV/EBITDA - 11.35 v/s 26.40 of industry