Event Update | Mining

January 2, 2012

Sesa Goa
Government raises export duty
Government raises export duty on iron ore: The government has raised export duty on iron ore to ad valorem 30% on lumps and fines, with effect from December 30, 2011, compared to 20% earlier. Iron ore exports from India have already declined by 25.2% to 35.4mn tonnes from April-October 2011 on account of export ban in Karnataka, stringent measures in issuing export permits in Odisha, a sharp decline in international iron ore price and increased export duty. Post the export duty hike, rise in rail freight and the recent decline in iron ore price are expected to severely affect iron ore exports from India. Before the export duty hike (as per Federation of Indian Mineral Industries), total iron ore exports during FY2012 were estimated to be 60mn tonnes compared to its previous estimate of 75.0mn tonnes. We now expect iron ore exports to be lower than 60mn tonnes during FY2012. While Sesa Goas profits are expected to be affected adversely, we do not expect any impact on NMDCs financials as we do not expect any export of iron ore by NMDC during FY2012 and FY2013. Higher export duty to affect Sesa Goas profitability: Sesa Goa generates ~90% of its net sales from iron ore exports. Hence, the export duty hike would increase the companys export duty expenses without any corresponding increase in iron ore prices. Accordingly, we have raised our export duty expenses for Sesa Goa to `1,681cr (previous estimate `1,390cr) for FY2012 and to `1,932cr (previous estimate `1,546cr) for FY2013. Also, we now believe some of the Karnataka iron ore would now be sold domestically, as EBITDA/tonne may not favor exports anymore. Our EBITDA estimates for FY2012 and FY2013 stand pruned by 8.1% and 9.1% to `3,314cr and `3,712cr, respectively. Outlook and valuation: Despite the recent correction in spot iron ore prices, we expect international iron ore prices to remain firm in the medium term, as we expect additional meaningful supplies to hit the sea-borne market only from CY2014. 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, higher railway freight and lower volumes from Goa mines. We recommend Buy on the stock with an SOTP-based target price of `195 (`213 earlier).

BUY
CMP Target Price
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 Mining 13,614 1.3 346/149 108575 1 15,518 4,637 SESA.BO SESA@IN

`157 `195
12 months

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 (24.2) (31.6)

(5.7) (11.1) (36.3) (40.7)

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

FY2010
5,858 18.1 2,629 32.2 29.6 53.7 5.3 1.6 41.6 41.7 3.6 6.6

FY2011
9,205 57.1 4,222 60.6 47.5 56.5 3.3 1.1 40.7 42.9 2.6 4.5

FY2012E
7,979 (13.3) 2,718 (35.6) 30.6 41.5 5.1 0.9 19.3 19.3 1.5 3.6

FY2013E
9,073 13.7 2,818 3.6 31.7 40.9 4.9 0.8 17.0 17.5 1.5 3.7

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

Please refer to important disclosures at the end of this report

Sesa Goa | Event Update

Exhibit 1: Change in estimates

(` cr) Net sales EBITDA EBITDA margin (%) PBT PAT PAT margin (%)
Source: Angel Research

Earlier estimates FY12E FY13E

Revised estimates FY12E FY13E

Upgrade/(downgrade) (%) FY12E FY13E

7,979 3,605 45.2 3,692 2,925 36.7

9,073 4,099 45.2 4,191 3,088 34.0

7,979 3,314 41.5 3,401 2,718 34.1

9,073 3,712 40.9 3,805 2,818 31.1

0.0 (8.1) (365)bp (7.9) (7.1) (259)bp

0.0 (9.4) (426)bp (9.2) (8.8) (298)bp

Exhibit 2: 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

312 227 157 156

195 230

Neutral Neutral Buy Buy

196,881 3,821 13,614 61,671

25 48

13.3 8.6 5.1 7.7

12.7 7.9 4.9 6.9

4.4 1.6 0.9 2.4

3.5 1.4 0.8 1.9

8.4 3.3
3.6

7.6 2.6
3.7

37.8 19.4
19.3

30.5 18.4
17.0

35.2 21.1
19.3

28.0 19.7
17.5

3.9

2.9

35.8

31.1

44.7

39.1

Source: Angel Research

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Sesa Goa | Event 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 FY2009 FY2010 FY2011 FY2012E FY2013E 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 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 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 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 62.8 487.8 5,560 1,337 24.1 4,222 4,222 4,222 60.6 45.9 49.1 47.5 60.6 8,138 160 7,979 7,979 (13.3) 4,665 661 1,936 207 1,860 3,314 (36.3) 41.5 96 3,218 (37.0) 40.3 196 380 11.2 3,401 (39.4) 3,401 986 29.0 2,415 2,718 2,718 (35.6) 34.1 30.6 30.6 (35.6) 9,254 181 9,073 9,073 13.7 5,361 787 2,222 236 2,115 3,712 12.0 40.9 109 3,603 12.0 39.7 216 418 11.0 3,805 11.9 3,805 1,141 30.0 2,663 2,818 2,818 3.6 31.1 31.7 31.7 3.6

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Sesa Goa | Event Update

Balance sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Reserves & surplus Shareholders funds Share warrants 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 4,265 745 3,519 429 12,123 4,339 1,990 1,322 1,028 1,009 3,330 19,401 5,265 855 4,410 79 12,123 6,258 3,743 1,322 1,193 1,096 5,162 21,773 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 87 15,309 15,395 3,937 68 19,401 87 17,681 17,768 3,937 68 21,773 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

Note: Cash and bank balance include deposits

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Sesa Goa | Event Update

Cash flow statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Direct taxes paid Cash flow from operations (Inc.)/Dec. in fixed assets (Inc.)/Dec. in investments (Inc.)/Dec. in loans & adv. Other income 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 69 (1,203) 184 (184) 21 21 113 (999) 138 1,001 (1,139) (3) 21 18 (2,168) (5,394) 537 2,358 206 6 2,682 (141) 18 34 2,150 (2,965) (6.6) 328 85.0 (420) 149 34 183 303.6 (3,919) 2,938 133 2,804 1,093 183 1,990 154.2 (496) 445 (445) 1,753 1,990 3,743 FY2008 FY2009 FY2010 2,325 50 (170) (71) 747 1,387 (67) (1,205) 2,710 52 314 (221) 721 2,134 (147) (965) 3,445 75 179 (363) 764 2,571 (149) (3,078) FY2011 FY2012E FY2013E 5,560 96 (304) (451.1) 1,368 3,533 (984) (4,131) 3,401 96 (303) 986 2,208 (900) (3,323) 3,805 109 (79) 1,141 2,694 (650) -

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Sesa Goa | Event 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 (0.7) (0.9) 819.4 (1.3) (2.5) 583.2 (1.5) (3.7) 55.4 (1.4) (3.6) 134.0 (0.7) (3.1) 16.4 (0.7) (3.2) 16.7 5.1 234 35 102 53 6.0 213 28 170 33 3.2 261 20 351 12 3.2 265 20 403 7 2.2 270 24 250 18 1.9 270 24 250 23 96.2 264.5 68.0 63.9 198.5 51.9 41.7 136.3 41.6 42.9 465.4 40.7 19.3 31.9 19.3 17.5 16.8 17.0 58.9 66.6 4.4 172.0 172.0 50.2 73.6 3.8 142.2 142.2 52.5 76.6 2.5 101.6 101.6 55.5 75.9 6.1 258.4 258.4 40.3 71.0 0.7 21.4 21.4 39.7 70.0 0.4 11.6 11.6 19.7 19.7 20.3 2.3 37.4 25.3 25.3 25.9 2.3 59.9 31.6 29.6 32.5 3.3 95.3 49.1 47.5 48.5 5.0 144.0 30.6 30.6 31.6 1.5 173.0 31.7 31.7 32.9 5.0 199.7 8.0 7.7 4.2 1.4 3.8 6.3 4.7 6.2 6.0 2.6 1.4 3.1 6.1 3.2 5.3 4.8 1.6 2.1 3.6 6.6 2.1 3.3 3.2 1.1 3.2 2.6 4.5 1.7 5.1 5.0 0.9 1.0 1.5 3.6 0.6 4.9 4.8 0.8 3.2 1.5 3.7 0.6 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

January 2, 2012

Sesa Goa | Event Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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%)

January 2, 2012

Sesa Goa | Event Update

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800 Research Team
Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Shrinivas Bhutda Sreekanth P.V.S Hemang Thaker Nitin Arora Ankita Somani Varun Varma Sourabh Taparia Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Dealer mayuresh.joshi@angelbroking.com Hiten.Sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Infrastructure Metals, Mining Mid-cap Research Associate (Cement, Power) Research Associate (Automobile) Research Associate (Banking) Research Associate (FMCG, Media) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) Research Associate (Banking) Research Associate (Cement, Power) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com shailesh.kanani@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com shrinivas.bhutda@angelbroking.com sreekanth.s@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com sourabh.taparia@angelbroking.com

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January 2, 2012