Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Sesa Goa: Steel cycle boon - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 30, 2004

    Sesa Goa: Steel cycle boon

    Performance summary
    The boom in the steel industry continued to drive the fortunes of industries and companies that cater to the demand for raw materials required by the steel industry. Iron ore is one such raw material, which forms a key input in the manufacturing of steel. This helped Sesa Goa, an Indian iron ore exporter, to continue to register splendid performance in the second quarter of the current fiscal also. After registering a 290% jump in bottomline on the back of a strong 88% growth in topline during 1QFY05, strong iron ore prices helped the company record a 218% growth in topline and significant profits during the September quarter, compared to a loss in the same period last year.

    Company background
    Sesa Goa Ltd., the flagship company of the Sesa Group, is India’s largest private sector exporter of iron ore. A major part of the iron ore produced by the company is exported and it currently accounts for 1.5% of world trade in iron ore. Over the last decade, the company has also diversified into the manufacturing of pig iron and metallurgical coke. It also has a presence in shipping, ship building and engineering.

    (Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
    Net Sales 424 1,350 218.4% 1,562 3,490 123.5%
    Expenditure 476 1,001 110.3% 1,329 2,049 54.1%
    Operating Profit (EBDITA) (52) 349   233 1,441 519.8%
    EBITDA margin (%) -12.3% 25.9%   14.9% 41.3%  
    Other income 15 70 363.6% 32 95 194.8%
    Interest 19 13 -31.5% 37 26 -29.5%
    Depreciation 37 39 3.7% 73 78 7.0%
    Profit before tax (93) 368   154 1,431 828.1%
    Tax (25) 128   48 508 958.3%
    Profit after Tax/(Loss) (68) 240   106 923 769.2%
    Net profit margin (%) -16.1% 17.7%   6.8% 26.5%  
    No. of Shares (m) 19.7 19.7   19.7 19.7  
    Diluted earnings per share* (13.9) 48.7   10.8 93.8  
    Price to earnings ratio (x)   16.9     8.8  
    (* annualised)            

    What has driven performance in 2QFY05?
    Net sales:  The strong topline growth of 218% during 2QFY05 for the company can be attributed to two factors – strong volume sales along with much stronger realisations. The volume sales (including exports) were on the back of continued strong demand for steel globally, led by China, which dominates the global steel scenario with its 25% share of the industry. This led to a sharp rise in demand for iron ore, which in turn led to a shortage of the same, consequently pushing up iron ore prices, both contract and spot prices. It must be noted that after a 9% hike in international contracted iron ore prices for FY04, FY05 saw a sharper increase of 18.6% in the same. Though there was some hiccup witnessed earlier in the current fiscal on the back of reports of Chinese authorities determined to rein in their galloping economy, iron ore prices firmed up again. This has aided the company’s performance in 1HFY05.

    Operating margins:  On the back of a strong topline growth, the operating margins for the company witnessed a big surge. While during 2QFY05, the company recovered from its losses during the same quarter in the previous fiscal, if we look at the first half performance of the company, the operating margins have shot up from under 15% to over 41%. While all the operating expenses have improved as a percentage of net sales, it must be noted that logistics cost is a key element in the value chain of the iron ore business. Moreover, since iron ore exports form a major source of revenue for the company, freight rates have a key role to play in deciding the profitability of the company.

    Net profits:  The bottomline performance of the company is primarily a trickle down effect of the company’s performance at the operating level. The other income component has also played a small role in pepping up the bottomline of the company.

    What to expect?
    At Rs 825, the stock trades at a P/E multiple of 8.8x its 1HFY05 annualised earnings. Going forward, considering the huge steel capacity expansions, both domestic and globally, the scenario for iron ore demand remains attractive. The company’s export markets include Japan, China, Pakistan and parts of Europe. Though China has huge iron ore reserves, it is primarily of lower grade and hence the country imports huge amounts of higher-grade iron ore from countries like India. On the pricing front, though iron ore contract prices are likely to settle at higher levels for FY06 over that of FY05, the scenario post that does not look too encouraging. Further, it must be noted that the exchange rates volatility directly affects the earnings of the company.



    Equitymaster requests your view! Post a comment on "Sesa Goa: Steel cycle boon". Click here!


    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in VEDANTA LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts