Sesa Goa: Steel cycle boon - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Sesa Goa: Steel cycle boon

Nov 30, 2004

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)2QFY042QFY05Change1HFY041HFY05Change
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

VEDANTA 2020-21 Annual Report Analysis (Annual Result Update)

Oct 18, 2021 | Updated on Oct 18, 2021

Here's an analysis of the annual report of VEDANTA for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of VEDANTA. Also includes updates on the valuation of VEDANTA.

VEDANTA Announces Quarterly Results (3QFY21); Net Profit Up 58.5% (Quarterly Result Update)

Feb 1, 2021 | Updated on Feb 1, 2021

For the quarter ended December 2020, VEDANTA has posted a net profit of Rs 42 bn (up 58.5% YoY). Sales on the other hand came in at Rs 225 bn (up 5.3% YoY). Read on for a complete analysis of VEDANTA's quarterly results.

VEDANTA 2019-20 Annual Report Analysis (Annual Result Update)

Dec 11, 2020 | Updated on Dec 11, 2020

Here's an analysis of the annual report of VEDANTA for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of VEDANTA. Also includes updates on the valuation of VEDANTA.

A Peek into Tata Steel's Stellar June Quarter Performance (Views On News)

Aug 13, 2021

Tata Steel's June quarter profits were higher than the full-year profits reported for fiscal 2021.

Tata Metaliks Share Price Jumps 8% After Turning Profitable (Views On News)

Jul 14, 2021

A peek into Tata Metaliks' stellar June quarter performance.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 1, 2021 02:14 PM


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