Rocketing on iron ore Sesa Goa

Sesa Goa, the largest private-sector iron ore exporter in the country, reported a staggering 208% year-on-year jump in its consolidated first quarter net profit to Rs 1,301.79 crore on the back of significantly higher iron prices and a slight increase in the sales volume.

Net revenues too jumped nearly 140% to Rs 2,394.04 crore.
Sesa Goa, which draws around 90% of its overall revenues from mining, beneficiation and export of iron ore, benefited from the huge surge in iron ore prices globally, led by robust demand from China. Significantly, 80% of its sales are to China.

The company, a subsidiary of London-listed Vedanta Resources, reported average realisations of $85 per metric tonne (mt) for the quarter, a 130% y-o-y increase and 36% sequential increase.
It, however, reported moderate revenue growth in the other segments —- metallurgical coke (up 15.14%) and pig iron (up 3.15%).

The company witnessed a 70% increase in its total expenditure, primarily on account of substantially higher export duty and cost of purchase of ore. The government increased export duty on iron ore lumps from 10% earlier to 15%, which resulted in the company paying an additional Rs 123.65 crore to the Rs 3.93 crore paid in the corresponding quarter last year. The higher royalty cost led to a 438% increase in the cost towards purchase of ore to Rs 147.10 crore.

Despite this increased expenditure, operating profits showed a healthy 242% jump to Rs. 1550.70 crore (excluding exchange loss on FCCBs amounting to Rs 91.05 crore). Ebidta margins increased 19.4% year on year to 64.77%.

However, the company showed a modest 15% growth in consolidated iron ore sales volumes to 5.44 mt in the first quarter despite the fact that this is inclusive of sales from its subsidiary companies V S Dempo and Dempo Mining Corporation, which were not there for the better part of the quarter last year.

Iron ore volumes during the quarter dipped 26% year on year and marginally quarter on quarter as the company faced issues in port clearance and shipment with the approach of the monsoons. It expects to make up for the lesser sales in Q1 by exporting 6-7 mt of iron ore in the September quarter.

The company reported strong numbers on a standalone basis, too, with net sales up 101% to 1,899.18 crore y-o-y and profit after tax up 152% to Rs 1,025.51 crore.

Going ahead, analysts see average realisations for iron ore coming down over the next two quarters. The weakening global demand has led to an almost 20% cut in prices in the current quarter, apart from lower exports during monsoons. Also, the company has been facing delays in securing permits and environmental clearance in its initiative to double mining capacity to 50 mt in the coming 2-3 years.

The stock of Sesa Goa, which touched an intraday high of Rs 359 on the BSE, finally closed the day at Rs 352.25, up 1.11%.