22nd APRIL, 2010 Q4FY10 Update

SESA GOA LTD.

CMP : Rs. 457.00
TARGET : Rs. 525.00 RESEARCH
Recommendation HOLD

Introduction COMPANY DETAILS

BSE Code 500295
Sesa Goa Ltd. has reported a steller 4th quarter financial result. The company has
NSE Symbol SESAGOA
posted an impressive growth in its volume offtake thanks to the Dempo acquisition
Bloomberg Code SESA IN
earlier this year. During Q4, the Company produced 7.8 million tonnes of iron ore,
Market Cap (Rs. Crs) 38684
taking the full year production to 21.4 million tonnes, an increase of 60% and 34%
Free Float (%) 48.82
respectively, compared with the corresponding prior period last year. Iron ore
52-wk H/L (Rs.) 494/107
dispatches during quarter and year ended March 2010 were 7.4 million tonnes and
Avg. Daily Volume 1056265
20.5 million tonnes respectively, an increase of 47% and 36% compared with the
Face Value Re. 1
corresponding prior periods. During the same period, Dempo contributed 1.8 Beta 1.08
million tonnes and 3.6 million tonnes respectively, to the total dispatches. The
company management, in the conference call, has reiterated that it will continue
to maintain a growth rate of 25-30% for the next fiscal as well and for FY11 total FINANCIAL HIGHLIGHTS
production and sale can go upto 30 million tons. FY10' [Consolidated]
[Rs. Crs.]
Expectation & Recommendation
Share Capital 83.096
We expect that FY11 would be significantly better than the last year for the Debt Nil
company and is expected to report 70% growth in revenue, 64% growth in Net Sales 6615
EBITDA and 66% growth in PAT respectively, however, from FY12 onward the PAT 1994
company is expected to report muted growth in all aforementioned parameters. EPS (Rs.) 31.62
At the current market price of Rs. 457/- The stock is trading at a forward P/Ex of 6,
9.28 and 9 based on FY11E, FY12E and FY13E EPS of Rs. 76.9, Rs. 49.3 and Rs. 50.7
respectively. Thus we recommend “Hold” on the stock but advise to sell if the SHARE HOLDING PATTERN
price cross Rs. 515-525/share. Promoter 57.03
FII 26.56
OPERATIONAL DETAILS Financial Institutions 3.47
Production Details Others 12.98
Share price graph (Rs)
The company has had the best quarter in its history both in terms of volume growth
and in terms of the realisation that the company managed to get. As mentioned
before, the company produced 7.8 million tons of iron ore in the quarter under
review, in Q3FY10 the production has been 5.562 million tonnes and Q2FY10 the
production has been arround 1.619 million tonnes. Thus there has been 40.24%
growth in production of iron ore on QoQ basis. The production mix of iron ore has
been presented in the following pie chart:

ANALYST
Kinshuk Acharya
kinshuk@eurekasecurities.com
91-33-3918 0386 - 87
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SESA GOA LTD.
22nd APRIL, 2010

Average Realisation

The company has been consistently witnessing an increase in realisation

quarter over quarter as can be witnessed in the adjacent graph :-

As we can see that the average realisation per ton for the company has
increased by 14% on QoQ basis, which when compared with the price increase
that occurred between Q3 and Q2 of FY2010 which has been in the region of 3%
only, the increase in the last quarter has been extremely robust.

Other Details

During the quarter the company has made a net addition to its reserve and
resources by 43 million tons. With this the total reserve and resource of the
company has become 353 million tonnes in its own mines. The distribution of
reseve and resources as on 31st March 2010 are given below:

As per the management the expansion of the pig iron plant capacity to 625 ktpa
and the associated expansion of the metallurgical coke plant capacity to 560
ktpa are progressing as per schedule and expects the commissioning of the
same by Q1 FY 2012. The total cost for the project would be in the vicinity of Rs.
605 crore

Financial Highlights

Z Revenue for the company came at Rs2,403.54 crore compared to Rs1429.9 for the corresponding quarter last year and Rs. 1889 crore
in the 3rd quarter FY10. Which signifies a 68% groth on yoY basis and 27% growth on QoQ basis.

Z On consolidated basis the company has reported an EBITDA of Rs. 1632.07 crore compared to Rs. 810.2 crore in the corresponding
quarter last year, signifying a growth of 101% growth in EBITDA on YoY basis. The EBITDA Margin has improved to 58% compared to
52% in the corresponding quarter last year. On full year basis the EBITDA margin has improved from 53% last year to 54% in FY10.

Z Profit from operations came at Rs. 1486.37 crore in the quarter under review on consolidated basis compared to Rs. 738.47 crore in
the corresponding quarter last year. The Operating profit margin has improved to 53.1% during the quarter compared to 47% in the
corresponding quarter last year.

Z On consolidated basis the company has reported operating profit margin of 53% and 46.4% for the 4th quarter and FY10 compared to
47% and 47.6% for the corresponding period last year and for FY09 respectively.

Z Compared to the last year the other income for the company has gone up by 90% to 425.97 crore from 224.03 in FY09. This rise in
other income can be attributed to Rs. 55 crore MTM gain booked for FCCB of $500 mn issued by the company earlier.

Z The Ocean freight for the quarter has been reported to be Rs. 396.69 crore compared to 142.72 crore in the corresponding quarter
last year. On per ton basis the freight rate comes to Rs. 536 per ton compared to Rs. 260.58 per ton in Q3FY10 signifying an increase of
106% increase in freight rate per ton on QoQ basis. Similarly for the full year FY10 the ocean freight reported has been Rs. 812.16 crore
compared to Rs. 303.71 crore in FY09 on consolidated basis.

Z However, for the quarter under review and for the full year the increase in inland transportation has not gone up significantly. Inland
transportation for Q4FY10 has been reported to be 241.67 crore compared to Rs. 201.49 crore in the corresponding quarter last year.
For the full year FY10 the cost for inland transportation came at Rs. 843.97 crore compared to 852.93 in FY09 signifying a decrease of

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SESA GOA LTD.
22nd APRIL, 2010

1.05%. this has mainly happned because of the lower rate of railway freight charged by the railways last year. However, with the
economy stabilising and returning to growth trajectory, the Indian Railways has revised its distance based charge by levying an
additional charge of Rs 100 after hiking the distance based charge to Rs 300 per ton for iron ore traffic meant for exports, that is, for
other than domestic consumption on manufacture of iron and steel and cement industry. As per the latest release by the Indian
Railways, the Central Government has sanctioned approval for increasing the existing distance based charge further by Rs 100. This
revision, which comes within a gap if two weeks, have been made effective from April 1, 2010 to April 30, 2010. With this revision the
distance based charge will now undergo a change. Thus for FY11 the company would have to shell out more on the inland
transportation cost.

Z Other expenditure for the quarter has been reported at Rs. 144.43 crore compared to Rs. 138.4 crore in the corresponding period last
year. For the full year other expenses has been reported at Rs. 438.43 crore compared to Rs. 306.66 crore in FY09. Other expenses has
gine down sequentially mainly because of the fact that last quarter there has been a forex loss of Rs. 118 crore, which is not there in
this quarter. However, the increase in demurage charges and royalty has largely contributed in other income being on the higher side.

Key Takeaway from the Concall

Z The management reiterated their plans to augment iron ore production volume to the targeted level of around 50 Mt in next 2-3
years, of which 30 Mt is expected to come from Goa (20 Mt is expected to come from Sesa's Goa Operations, 10 mt from Dempo), 10
Mt from Karnataka and 10 Mt from Orissa

Z The strong performance by the company during the quarter and also for the full year has been attributed by the management to
mainly two things robust demand from China and a constant rise in iron ore of below 62% Fe content grade prices in the international
market. Currently 58% Fe content grade of iron ore prices are ruling at around $120 per ton.

Z In the current quarter the participation of iron ore traders have come down significantly, following the news that the Chinese
government has put restriction in importing iron ore of Fe content grade of below 62%. However, the management indicated that the
company has not received any official communication in this regard and would wait for further clarification on the issue. The
shipment for the time being is strong and the management has indicated that they are booked to the extent of 50% for May 2010.

Z As per the management the company's exposure to traders buying less than 60% Fe grade ore is restricted to less than 25%. Rest of
the ore is sold to companies like Sino Steel, etc. directly and there has not been any shortfall of demand from these companies
witnessed as of now. Thus, the management tried to convey that company is not going to be impacted very severely going forward.

Z Though the company has clocked record volume growth, excluding Dempo Sesa Goa has produced only 17 million tonnes for the full
year which is only about 13% growth compared to the last year. This lower volume of sale and production has been attributed to
extended monsoon in Goa with the prevalence of cyclonic storm. In addition to this there has been issues with evacuating iron ore
from Orissa and Karnataka on account of procedural delays in obtaining clearances and permit from the government. In addition to
this there are delays that the company faced on account of issues relating to mineral policy in Goa. However, the company is working
constantly along with the industry body to work out these issues with the government.

Z The cost of purchase of ore has shown a significant increase during the quarter to 121 crore from 66 crore in Q3FY10. This has been
attributed by the management to the linkage of ore extracted from 3rd party mines to market price of the ore of the corresponding
grade. Most of the 3rd party mines operated by the company are located in Orissa, which produces ore of Fe 63.5% grade and the
curring price of such ore in the international market are in the vicinity of $175 per ton.

Z During the full FY 2010 spot to contract mix for the company has been 80% and 20%. The long term contract signed by the company
are for >60% Fe content grade.

Z While updating on the logistic side the management indicated that the railway siding in Orissa will be ready by 1st half of FY11 and
Karnataka by FY11 end. The company expects to complete road corridor by 1st Quarter FY12.

Z The effective tax rate of the company is around 24%. The company has certain plants which enjoys EOU status, however such status is

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SESA GOA LTD.
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going to end in FY10-11. Thus FY12 onward the company is going to experience an increase in effective tax rate.

Z The management has indicated that the company will be able to maintain 20-25% growth in volume YoY. For FY11 the company is
targeting an output of 30 million tonnes.

Z The royalty rates have increased significantly during FY10 as Advelorem royalty regime got implemented from 13th August 2009.
Currently the royalty cost is in the range of Rs. 80-90/ton compared to about Rs. 20/ton previously.

Z As at 31 March 2010, the Company had cash and cash equivalents of Rs. 6,952 crore, consisting of, Rs. 4,565 crores in debt mutual
funds and Rs. 2,354 crores in fixed deposits with banks.

Financials (Quarterly Performance)

Figures in Rs. Crore Consolidated Standalone
Particulars Q4FY10 Q4FY09 YoY% Q4FY10 Q4FY09 YoY%
Sales / Income from operations 2813.19 1584.43 78% 2123.37 1484.98 43%
Less: Excise duty 12.96 11.81 10% 0 0
Net sales 2800.23 1572.62 78% 2123.37 1484.98 43%
Less: Ocean freight 396.69 142.72 178% 289.36 142.7 103%
Net Sales after oceanic Freight 2403.54 1429.9 68% 1834.01 1342.28 37%
Other operating income 15.36 13.64 13% 24.73 11.33 118%
Expenditure
Change in stock and WIP -63.89 47.41 -235% -77.66 13.8 -663%
Consumption of raw materials 88.1 64.29 37% 73.4 37.08 98%
Staff cost 44.7 25.01 79% 28.55 21.85 31%
Consumption of stores 68.6 54.55 26% 59.36 52.31 13%
Inland transportation 241.67 201.49 20% 201.95 199.3 1%
Other services 123.2 85.81 44% 101.42 78.27 30%
Purchase of ore 162.07 96.32 68% 162.07 96.32 68%
Export duty 121.48 -12.75 -1053% 90.27 -12.07 -848%
Other expenditure 144.43 138.4 4% 114.15 148.17 -23%
Less: Costs / expenses recovered -14.47 -10.49 38% -17.27 -12.34 40%
Depreciation 16.64 15.03 11% 15.72 13.16 19%
Operating Profit 1486.37 738.47 101% 1106.78 717.76 54%
Operating profit margin 53% 47% 13% 52% 48% 8%
Other income 129.06 56.7 128% 121.92 55.27 121%
EBITDA 1632.07 810.2 101% 1244.42 786.19 58%
EBITDA Margin 58% 52% 13% 59% 53% 11%
Profit before interest and tax 1615.43 795.17 103% 1228.7 773.03 59%
Interest 22.65 0.74 2961% 22.37 0.74 2923%
PBT 1592.78 794.43 100% 1206.33 772.29 56%
PBT Margin 57% 51% 13% 57% 52% 9%
Provision for tax 0 0 0 0
Current tax 385.87 245 57% 254 243 5%
Fringe benefit tax 0 0.04 -100% 0 0.07 -100%
Deferred tax -8.2 1.03 -896% -12 0.44 -2827%
Profit after tax 1215.11 548.36 122% 964.33 528.78 82%
PAT Margin 43% 35% 24% 45% 36% 28%
Minority interest 2.24 0.72 211% 0 0
Net profit for the group 1212.87 547.64 121% 964.33 528.78 82%

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SESA GOA LTD.
22nd APRIL, 2010

Financial Annual (Consolidated) In Rs. Crore

Particulars FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Gross Sales ** 3471.15 5302.59 6659.55 11286 11743 12085 13489
Excise Duty 55.93 73.18 44 75 78 80 90
Net Sales 3415.22 5229.41 6615 11211 11665 12004 13400
Other Income 69.44 224.03 425.97 430 430 430 430
Total Income 3508.44 5486.84 7096.42 11641 12095 12434 13830
Total Expenditure 1499.44 2724.02 3526 5783 6009 6178 6871
PBIDT 2009 2763 3571 5858 6086 6257 6959
PBIDT Margin 59% 53% 54% 52% 52% 52% 52%
Interest 0.03 0.99 51.72 60 65 55 55
PBDT 2008.97 2761.83 3519 5798 6021 6202 6904
PBDT Margin 59% 53% 53% 52% 52% 52% 52%
Depreciation 48.97 51.67 75 86 154 160 155
PBT 1960 2710 3445 5712 5868 6042 6749
PBT Margin 57% 52% 52% 51% 50% 50% 50%
Tax 653.82 715.27 806 1336 1496 1541 1721
Effective Tax Rate 33% 26% 23% 23% 26% 26% 26%
Profit After Tax 1306.18 1994.89 2639 4376 4371 4501 5028
PAT Margin 38% 38% 40% 39% 37% 37% 38%
EPS (fully diluted) 25.3 31.6 76.9 49.3 50.7 56.7
Outstanding Shares 83.46 88.73 88.73 88.73 88.73
(assuming full FCCB Conversion)
P/E (Forward) 5.94 9.28 9.01 8.06
** Revenue Assumptions
Particulars FY10 FY11 FY12 FY13 FY14
Iron ore Sales (in tons) 20500000 27000000 38000000 41000000 48000000
Average Realisation (full year) 2556.6 3700 2800 2600 2500
Revenue from iron ore sale 5241.03 9990 10640 10660 12000
Metallurgical Coke Sales (in tons) # 254000 266700 273000 364000 380800
Average Realisation (full year) 15138.58 17600 16380 15960 14700
Revenue from Met Coke 384.52 469.392 447.174 580.944 559.776
Pig Iron sales (in tons) 279000 292950 328125 468750 531250
Average Realisation (full year) 19778.85 28225 20000 18000 17500
Revenue from Pig Iron Sale 551.83 826.8514 656.25 843.75 929.6875

# Calculated

Conclusion

We expect Sesa Goa to have the best year in FY11 as the expectation is that iron ore prices will likely double in CY2010 Q2, and are
expected to rise further in Q3and Q4. However, increasing domestic Chinese production of iron ore, possible increase in scrap
consumption with inevitable margin compression in the steel industry should put pressure on prices in subsequent periods. In addition
to this, Oversupply looms from 2012. A turnaround in iron ore prices could hit BHP Billiton, Vale, Rio Tinto and other miners furiously
digging for more supplies. The Current demand for 1.3 billion tonnes of iron ore produced annually suggests a deficit, according to official
Australian government forecasts. But that deficit could vanish if iron ore output matches growth forecasts of 50 percent more ore by
2015. Australia, the world's largest exporter of iron ore, expects to ramp up its annual shipments by 40 percent to 552 million tonnes over
the next five years. More than two dozen mines are proposed or under development in Australia, some of which could contribute

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SESA GOA LTD.
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hundreds of millions more tonnes to worldwide supply. All these developments would certainly create substantial downward pressure
on international iron ore prices.

In line with iron ore, metallurgical coal prices have also moved from annual to a quarterly basis. The settlement price of the coal for
CY2010 Q2 has got settled for USD200/t, but we now believe prices will increase to USD300/t by Q4. However, challenges to the
continuation of such high prices should come from increasing domestic Chinese production and slower domestic imports as has been
witnessed in the last couple of months. As such we expect coke prices to hover around $400/ton on an average for FY11. However, with
coking coal becoming concerntrated in the hand of a few producers, the prices are likely to remain on the higher side in the short to
medium term. However, we expect in the longer term technology evolution such as the FINEX Technolory ® of POSCO would reduce the
requirement of coal substantially. As such we expect the company to benefit significantly from the augmentation of its coke oven battery
in FY11, however going forward the prices are going to come down to more reasonable level.

Valuation & Recommendation

At a current price of Rs. 457/ton the stock is trading at a forward P/Ex of 6, 9.28 and 9 based on FY11E, FY12E and FY13E EPS of Rs. 76.9,
Rs. 49.3 and Rs. 50.7 respectively. We expectc that from FY12 onward the iron ore realisation for the company to come down which
will be accompanied by higher effective tax rate and assuming the remaining 4245 FCCB gets converted the equity base for the
company would go up to 88.73 crore, the EPS is likey to come down significantly, in view of this we recommend “Hold” on the stock but
advise to sell if the price cross Rs. 515-520/share.

DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, but
we do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute our
judgement as of this date and are subject to change without notice. Eureka Research will not be responsible for the consequence
of reliance upon our opinion or statement contained herein or for any omission. Any feedback can be mailed to the following ID.

Analyst : Kinshuk Acharya

Email : kinshuk@eurekasecurities.com
Phone : 91-33-3918 0386 - 87
Registered Office : 7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001
Corporate Office : B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001
Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184
e: helpdesk@eurekasecurities.com
Mumbai Office : 909 Raheja Chamber, 213 Nariman Point, Mumbai-400021
Phone : 91-22-2202 5941 / 5942
e: mumbai@eurekasecurities.com

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