3QFY2012 Result Update | Mining

February 1, 2012

Sesa Goa
Performance Highlights

NEUTRAL
CMP Target Price
% chg (yoy) 2QFY12 % chg (qoq)

`222 -

Particulars (` cr) Net sales EBITDA EBITDA margin (%) Adj. PAT

3QFY12

3QFY11

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

2,617 1,085 41.5 870

2,250 1,231 54.7 1,065

16.3 (11.8) (1,322)bp (18.4)

790 260 32.9 235

231.4 317.4 854bp 269.4

Mining 19,333 1.0 348/189 618539 1 17,301 5,236 SESA.BO SESA@IN

Source: Company, Angel Research

For 3QFY2012, Sesa Goa (Sesa) reported net sales growth of 16.3% yoy. However, the companys adjusted PAT declined by 18.4% yoy mainly on account of higher export duty. We recommend Neutral on the stock. Higher sales volume and realization drive 3QFY2012 top-line growth: For 3QFY2012, Sesas net sales increased by 16.3% yoy to `2,617cr, mainly due to increased iron ore sales volumes to 5.0mn tonnes (+5.4% yoy) as well as increased realization to US$94 (+10.0% yoy). Higher export duty dents EBITDA: Despite 16.3% yoy growth in net sales, EBITDA declined by 11.8% yoy to `1,085cr, mainly on account of higher export duty. Interest expense increased by 444.4% yoy to `73cr. Hence, reported PAT decreased by 35.5% yoy to `692cr. The company reported exceptional item of `178cr related to forex loss during the quarter. Sesa also reported share of profit from its associate (Cairn India) of `122cr. Excluding exceptional items, adjusted PAT declined by 18.4% yoy to `870cr (above our estimate of `562cr). Outlook and valuation: We expect Sesas margins to decline in FY2013 on account of higher iron ore export duty to 30% effective 4QFY2012 (prior to 4QFY2012, duty stood at 20%). We believe the current stock price discounts negatives such as acquisition of a minority stake in the unrelated oil business via acquisition of Cairn Indias stake, increased export duty and railway freight and lower volumes from Goa mines. However, there is an overhang of mining ban in Karnataka and potential mining ban in some of the Goa mines. Thus, we recommend Neutral on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 55.1 5.2 23.8 15.9

Abs. (%) Sensex Sesa Goa

3m

1yr

3yr 87.3

(1.0) (4.0)

6.9 (31.3) 162.5

FY2010
5,858 18.1 2,629 32.2 29.6 53.7 7.5 2.3 41.6 41.7 4.6 4.7

FY2011
9,205 57.1 4,222 60.6 47.5 56.5 4.7 1.5 40.7 42.9 3.2 2.1

FY2012E
8,522 (7.4) 3,193 (24.4) 35.9 43.2 6.2 1.2 22.3 21.2 2.1 2.5

FY2013E
8,262 (3.0) 3,965 24.2 44.6 35.9 5.0 1.0 22.5 13.3 2.3 2.1

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 Bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

Sesa Goa | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance (Consolidated)

(` cr) Total sales Raw Material % of Net sales Consumption of Stores % of Net sales Staff Cost % of Net sales Export Duty % of Net sales Other Expenditure % of Net sales Total Expenditure % of Net sales EBITDA % of Net sales Interest Depreciation Other Income Exceptional Items Profit before tax % of Net sales Tax % of PBT Reported net income % of Net sales Adj.PAT
Source: Company, Angel Research

3QFY12

3QFY11

yoy (%)

2QFY12

qoq (%)

2,617 540 20.6 96 3.7 64 2.4 448 17.1 133 5.1 1,532 58.5 1,085 41.5 73 26 18 (178) 826 31.6 256 31.0 692 26.4 870

2,250 275 12.2 66 2.9 50 2.2 117 5.2 518 23.0 1,020 45.3 1,231 54.7 13 21 127 2 1,326 58.9 257 19.4 1,068 47.5 1,065

16.3 96.4 45.8 28.7 284.2 (74.3) 50.3 (11.8) 444.4 26.9 (85.8) (37.7) (0.3) (35.2) (18.4)

790 100 12.7 72 9.1 63 7.9 87 11.0 94 11.9 530 67.1 260 32.9 52 24 50 (234) 0.4 0.0

231.4 439.1 32.9 2.1 414.2 42.2 189.2 317.4 41.2 8.4 (64.3) -

(1) (28,271.4) (245.9) 1 0.2 235 269.4 53,932.0

Exhibit 2: 3QFY2012 Actual vs. Angel estimates

(` cr) Net sales EBITDA EBITDA margin (%) Adj. PAT
Source: Company, Angel Research

Actual 2,617 1,085 41.5 870

Estimates 1,775 821 48.0 562

Variation (%) 47.4 32.3 (653)bp 54.8

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Higher in realization and volumes drive top-line growth

For 3QFY2012, Sesas net sales increased by 16.3% yoy to `2,617cr, mainly due to higher iron ore sales volumes to 5.0mn tonnes (+5.4% yoy) as well as increased realization to US$94 (+10.0% yoy). Net sales came in above our estimate of `1,775cr due to higher-than-expected sales volumes.

Exhibit 3: Iron ore sales volume grew by 5.4% yoy

8 7 6 120 100 80 60 40 20 0 3QFY10 1QFY11 3QFY11 1QFY12 3QFY12 Sales Volume (LHS) Average realization (RHS)

Exhibit 4: EBIT/tonne trend

120.0 100.0

(US $/tonne)

(mn tonne)

4 3 2 1 0

(U $ /tonne)

80.0 60.0 40.0 20.0 0.0 3QFY10 1QFY11 Revenue/tonne 3QFY11 Cost/tonne 1QFY12 EBIT/tonne 3QFY12

Source: Company, Angel Research

Source: Company, Angel Research

EBITDA fell by 11.8% yoy

Despite net sales growth of 16.3% yoy, EBITDA declined by 11.8% yoy to `1,085cr on account of higher export duty, which grew by 284.2% yoy to `448cr. Interest expense increased by 444.4% yoy to `73cr. Hence, reported PAT decreased by 35.5% yoy to `692cr. The company reported exceptional item of `178cr related to forex loss during the quarter. Sesa also reported share of profit from its associate (Cairn India) of `122cr. Excluding exceptional items, adjusted PAT declined by 18.4% yoy to `870cr (above our estimate of `562cr).

Exhibit 5: EBITDA declined by 11.8% yoy

2500 2000 1500 1000 500 0 3QFY10 1QFY11 EBITDA (LHS) 3QFY11 1QFY12 3QFY12 EBITDA margin (RHS) 70 60 50

Exhibit 6: Adjusted PAT down by 18.4% yoy

1600 1400 1200
(` cr)

60 50 40 30 20 10 0 3QFY10 1QFY11 Adj. PAT (LHS) 3QFY11 1QFY12 Net profit margin (LHS) 3QFY12
(%)

(` cr)

(%)

40 30 20 10 0

1000 800 600 400 200 0

Source: Company, Angel Research

Source: Company, Angel Research

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Investment arguments
Commencement of operations in Karnataka to drive volume growth During 1QFY2012, the Supreme Court had imposed a blanket ban in Karnataka (capacity 6mn tonnes), where Sesa operated its mines. The mines are currently being inspected for any irregularities. The company expects the Supreme Court to lift the ban in the coming three-six months and, henceforth, Sesa should restart production. Commencement from Karnataka mines could restore the companys FY2013 volumes to FY2011 levels of 21mn tonnes. However, we are not modeling additional volumes from Karnataka mines on account of lack of clarity on the timeline of the same. Western Cluster Ltd. (WCL) A long-term story During August 2011, Sesa acquired a 51% stake in WSL, Liberia, for a cash consideration of US$90mn (~`400cr). WCL will develop the Western Cluster Iron ore project in Liberia, which includes development of iron ore deposits and the required infrastructure for iron ore export. WCL has potential iron ore resources of over 1bn tonnes (~330mn tonnes of saleable product); it is in close proximity to the existing port infrastructure and has access to land for railway corridor. Sesa aims to commence production from this mine in 3-4 years.

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Outlook and Valuation

We expect Sesas operating margin to decline in FY2013 on account of higher iron ore export duty to 30% effective 4QFY2012 (prior to 4QFY2012, duty stood at 20%). Sesas core business PAT is expected to decline in FY2013; however, its PAT, including share of profits from its associate Cairn India, is expected to grow by 24.2% yoy in FY2013. We believe the current stock price discounts negatives such as acquisition of a minority stake in the unrelated oil business via acquisition of Cairn Indias stake, increased export duty and railway freight and lower volumes from Goa mines. However, there is an overhang of mining ban in Karnataka and potential mining ban in some of the Goa mines. We value Sesa at 3.5x FY2013 EV/EBITDA and Sesas stake in Cairn India at a 60% discount to the current market price. Thus, we derive a target price of `230/share and recommend Neutral on the stock. A key catalyst for the stock would be commencement of production and sales from its Karnataka mine.

Exhibit 7: EPS Angel forecast vs. consensus

Year FY2012E FY2013E
Source: Bloomberg, Angel Research

Angel forecast Bloomberg consensus (%) (%)

35.9 44.6 34.5 40.1

Variation (%)
4.0 11.1

Exhibit 8: Recommendation summary

Companies Coal India MOIL Sesa Goa NMDC CMP Target Price (`) (`) Reco. Mcap Upside (` cr) P/E (x) FY12E FY13E P/BV (x) FY12E FY13E EV/EBITDA (x) RoE (%) RoCE (%) FY12E FY13E FY12E FY13E FY12E FY13E

317 263 222 185

231

Neutral 200,323 Neutral Neutral Buy 4,418 19,333 73,407

25

13.5 9.9 6.2 9.2

12.9 9.1 5.0 8.2

4.5 1.8 1.2 2.9

3.5 1.6 1.0 2.3

8.6 4.4
2.5

7.8 3.7
2.1

37.8 19.4
22.3

30.5 18.4
22.5

35.2 21.1
21.2

28.0 19.7
13.3

5.0

3.9

35.8

31.1

44.7

39.1

Source: Angel Research

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Exhibit 9: EV/EBITDA band

40,000 35,000 30,000 25,000 20,000

(` cr)

15,000 10,000 5,000 0 (5,000) Aug-04 Jul-05 Jun-06 1.0x May-07 2.5x Apr-08 4.0x Mar-09 5.5x Feb-10 Jan-11 Dec-11

7.0x

Source: Bloomberg, Angel Research

Exhibit 10: P/E band

600 500 400

(`)

300 200 100 0 Aug-04

Jul-05

Jun-06

May-07 3.0x

Apr-08 6.0x

Mar-09 Feb-10 Jan-11 9.0x 12.0x

Dec-11

Source: Bloomberg, Angel Research

Exhibit 11: P/BV band

700 600 500
(`)

400 300 200 100 0 Aug-04 Jul-05 Jun-06 May-07 Apr-08 Mar-09 1.0x 2.0x 3.0x Feb-10 4.0x Jan-11 Dec-11

Source: Bloomberg, Angel Research

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Profit and loss statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net sales) Depreciation EBIT % chg (% of Net sales) Interest charges Other income (% of PBT) Share in profit of asso. Recurring PBT % chg Extra. Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) Add: Earnings of asso. Less: Minority interest Extra. Expense/(Inc.) PAT after MI (reported) ADJ. PAT % chg (% of Net sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 3,845 79 3,766 57 3,823 72.4 1,519 477 294 68 680 2,303 139.2 60.3 50 2,253 144.0 58.9 3 74 3.2 2,325 140.7 2,325 776 33.4 1,549 1,549 1,549 137.9 40.5 19.7 19.7 137.9 FY2009 4,991 73 4,918 41 4,959 29.7 2,417 494 394 77 1,452 2,542 10.4 51.3 52 2,490 10.5 50.2 4 224 8.3 2,710 16.6 2,710 715 26.4 1,995 (7) 1,988 1,988 28.4 40.1 25.3 25.3 28.4 FY2010 5,842 44 5,798 60 5,858 18.1 2,710 534 391 130 1,654 3,149 23.9 53.7 75 3,074 23.4 52.5 56 426 12.4 3,445 27.1 3,445 806 23.4 2,639 (10) 2,629 2,629 32.2 44.9 31.6 29.6 17.0 FY2011 9,209 64 9,145 60 9,205 57.1 4,002 858 958 207 1,979 5,203 65.2 56.5 96 5,107 66.1 55.5 38 540 9.6 5,608 62.8 49 5,560 1,337 24.1 4,222 4,222 4,271 62.5 46.4 49.6 48.0 62.5 FY2012E 8,692 170 8,522 8,522 (7.4) 4,841 679 1,954 222 1,987 3,681 (29.3) 43.2 103 3,578 (29.9) 42.0 196 380 10.1 3,762 (32.9) 3,762 1,091 29.0 2,671 522 3,193 3,193 (25.2) 37.5 35.9 35.9 (25.2) FY2013E 8,428 165 8,262 8,262 (3.0) 5,293 788 2,340 240 1,927 2,969 (19.3) 35.9 100 2,870 (19.8) 34.7 216 418 13.6 3,072 (18.4) 3,072 921 30.0 2,150 1,815 3,965 3,965 24.2 48.0 44.6 44.6 24.2

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Minority interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital work-in-progress Goodwill Investments Current assets Cash Loans & advances Other Current liabilities Net current assets Mis. exp. not written off Total assets 770 294 476 21 2,051 864 21 59 784 376 488 3,036 886 342 544 49 3,125 1,683 18 1,103 562 584 1,099 4,817 2,751 574 2,177 79 4,565 4,416 2,392 1,146 879 1,240 3,176 9,997 3,065 649 2,416 729 8,800 3,660 897 1,322 1,441 1,726 1,934 13,878 39 2,904 2,943 27 66 3,036 79 4,637 4,716 33 2 66 4,817 83 7,835 7,918 43 1,961 75 9,997 87 12,724 12,810 999 68 13,878 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

87 12,724 12,810 999 68 13,878 3,065 649 2,416 729 8,800 3,660 897 1,322 1,441 1,726 1,934 13,878

87 15,783 15,870 3,937 68 19,875 4,265 752 3,513 429 12,644 4,310 1,912 1,322 1,077 1,021 3,289 19,875

Note: Cash and bank balance include deposits

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Others Direct taxes paid Cash flow from operations (Inc.)/Dec. in fixed assets (Inc.)/Dec. in investments (Inc.)/Dec. in loans & adv. Others Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid (Incl. tax) Others Cash flow from financing Inc./(Dec.) in cash Opening cash balances Closing cash balances FY2008 2,325 50 (170) (71) 747 1,387 (67) (1,205) 69 (1,203) 184 (184) (0.2) 21 21 FY2009 2,710 52 314 (221) 721 2,134 (147) (965) 113 (999) 138 1,001 (1,139) (3) 21 18 FY2010 3,445 75 179 (363) 764 2,571 (149) (3,078) (2,168) (5,394) 537 2,358 206 6 2,682 (141) 2,533 2,392 FY2011 5,560 96 (304) (451) 1,368 3,533 (984) (4,131) 2,150 (2,965) (7) 328 85 (420) 149 748 897 FY2012E FY2013E

3,762 103 (340) 1,091 2,434 (900) (3,323) (4,223) 2,938 133 2,804 1,015 897 1,912

3,072 100 11 921 2,261 (650) (650) 445 (445) 1,166 1,912 3,078

February 1, 2012

Sesa Goa | 3QFY2012 Result Update

Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (post-tax) Cost of debt Leverage (x) Operating RoE Returns (%) RoCE (pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset T/o (gross block) Inventory (days) Receivables (days) Payables (days) WC capital (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

11.3 11.0 5.9 1.0 5.1 6.7 6.4 19.7 19.7 20.3 2.3 37.4 58.9 66.6 4.4 172.0 172.0 96.2 264.5 68.0 5.1 234 35 102 53 (0.7) (0.9) 819.4

8.8 8.6 3.7 1.0 4.2 5.7 4.3 25.3 25.3 25.9 2.3 59.9 50.2 73.6 3.8 142.2 142.2 63.9 198.5 51.9 6.0 213 28 170 33 (1.3) (2.5) 583.2

7.5 6.8 2.3 1.5 4.6 4.7 2.7 31.6 29.6 32.5 3.3 95.3 52.5 76.6 2.5 101.6 101.6 41.7 136.3 41.6 3.2 261 20 351 12 (1.5) (3.7) 55.4

4.7 4.6 1.5 2.2 3.2 2.1 2.1 49.1 47.5 48.5 5.0 144.0 55.5 75.9 6.1 258.4 258.4 42.9 465.4 40.7 3.2 265 20 403 7 (1.4) (3.6) 134.0

6.2 6.0 1.2 0.7 2.1 2.5 0.9 35.9 35.9 37.0 1.5 178.4 42.0 71.0 0.8 23.2 23.2 21.2 34.5 22.3 2.3 270 24 250 17 (0.7) (2.9) 18.2

5.0 4.9 1.0 2.2 2.3 2.1 0.8 44.6 44.6 45.7 5.0 217.9 34.7 70.0 0.4 8.7 8.7 13.3 12.6 22.5 1.7 270 24 250 24 (0.7) (4.6) 13.3

February 1, 2012

10

Sesa Goa | 3QFY2012 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Sesa Goa No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 1, 2012

11