Sesa Goa-Dempo Merger
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Transcript of Sesa Goa-Dempo Merger
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RESEARCH
COMPANY DETAILS
SHARE HOLDING
FINANCIALS HIGHLIGHTS
ANALYST
BSE Code
Promoter
FY09' [Consolidated]
Kinshuk Acharya
[Rs. Crs.]
Share Capital
092315 49900 / 91-33-3918 0387
Debt
Net Sales
PAT
EPS (Rs.)
FII
Financial Institutions
Others
NSE Symbol
Bloomberg Code
Market Cap (Rs. Crs)
Free Float (%)
52-wk H/L (Rs.)
Avg. Daily Volume
Face Value
Beta
500295
51.18
78.72
NIL
4808
1950
24.68
19.72
5.14
23.96
SESAGOA
SESA IN
15122
48.82
202/60
7645455
Re. 1
0.95
SESA GOA LTD. & DEMPO
CMP
12 JUNE, 2009
: Rs. 202.00
: Rs. 250.00TARGETHOLD
MERGER REPORT
Sesa Goa Ltd.,
Dempo - Operational Overview
Valuation & Recommendation
Concall Highlights
a majority-owned subsidiary of Vedanta Resources plc
(Vedanta), the London-based FTSE 100 metal and mining group and
India's largest Iron ore exporter has acquired all the outstanding common
shares of V S Dempo & Co. Private Limited (VSD), which in turn, also
holds 100% equity shares of Dempo Mining Corporation Private Limited and
50% equity shares of Goa Maritime Private Limited for a total consideration
of Rs. 1,750 crores (equivalent to US$368 million), on a debt-free and cash-
free basis, and includes net working capital of Rs. 145 crores (equivalent to
US$31 million). The deal has been totally funded by Sesa Goa's internal
accrual, which incidentally has been holding a cash balance of Rs. 4143
crores as on 31st March 2009.
This acquisition has enabled Sesa Goa to get access to Dempo's mineable
reserves and resources estimated at 70 million tons of iron ore in Goa
which the latter owns or has the mineable rights. VSD's Goa mining assets
includes processing plants, barges, jetties, transhippers and loading
capacities at Mormugoa port.
Dempo produced 3.94 million tons of iron ore and sold 4.36 million tons in
the year ended 31 March 2009 with un-audited revenue and EBITDA in
FY2009 of approximately Rs. 976 crores (equivalent to US$213 million) and
Rs. 417 crores (equivalent to US$91 million) respectively.
In the post Dempo acquisition scenario, at the current market price of Rs.
202 the stock is trading at a forward PE of 4 and 2.62 based on FY10E and
FY11E EPS of Rs.50 and Rs.77 respectively. Thus in the light of the present
developments we revise our view on the stock and recommend HOLD
with a price target of Rs. 250 in the medium term.
However the immediate risk to our recommendation can come from the
government, if it imposes export duty on iron ore.
Dempo, the largest exporter of iron ore from Goa has iron ore mines in
Goa. In addition to that, the company has entered in an MoU withMaharashtra and Jharkhand government for mine development. However,
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the acquisition excludes the Maharashtra MoU that the company has.
The company has 2 major mines from which 90% of its production comes from,however, one of the mines that the company operates, share common boundary with
Sesa Goa's mines. This would bring about huge synergies in operation for Sesa Goa
Dempo has a minable reserve of 70 million tons out of which production last year has
been 3.94 million tons and sale of 4.36 million tons. Sesa Goa management indicated
that for the current fiscal the company would maintain sale of 4 million tons as well.
Sesa Goa achieved a sales figure of 15 million tons in FY09 and the company has
guided a 20-25% growth in its sales volume, thus on a conservative basis the sales
target for FY10 for Sesa Goa would be 18 million tons and adding another 4 million
tons, the total sales volume for Sesa Goa is likely to be 22 million tons. Sesa Goamanagement has indicated that the company is targeting to augment its production
to 50 million tons over the period of next 2-3 years
Of the 4.36 million tons sold by Dempo in FY09, the product mix consisted of 92% of
fines and 8% lump. Next year the product mix is likely to remain the same
The company sold 1 million tons of iron ore in FY09 to Nippon Steel of Japan and rest
of the iron ore were sold in China. In China also the sales mix that the company was
able to achieve was 60% on spot basis and 40% in long term contract to two Chinese
traders
The cost of operation of the company is higher than that of Sesa Goa. The company
has a work force of 1400 employees out of which a small portion are on temporary
basis. Thus, for Sesa Goa there is a huge opportunity for cost rationalization which
can be implemented in the company
Dempo's production cost is in the region of $20/ton
Blended cutoff Fe content of iron ore produced by Dempo from its different fields is
55%
Since V S Dempo & Co. Private Limited owns 50% equity shares of Goa Maritime
Private Limited, this would result in huge synergistic benefits to Sesa Goa on logistics
front as the asset for the company includes barges, jetties, transhippers and loading
capacities at Mormugoa port. The company owns 2 transhippers which are capable
of handling load of 5 million tons, however, currently the shippers are handling about
2.5 million tons. Presently, sesa Goa's ship loading are done by outside facilities, now
these transshippers could be put to optimal use enabling Sesa to optimize its logistic
cost significantly going forward
Dempo Mine has 60% reserves, 40% Resource.
EUREKA RESEARCH 2
SESA GOA LTD. & DEMPO
MERGER REPORT
12 JUNE 2009
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Processing plants at Dempo have capacity of 6 million tone.
Sesa Goa to make a 1.9% preferential allotment to take the management holding inDempo to 55% subject to approval of shareholders.
SESA GOA LTD. & DEMPO
MERGER REPORT
12 JUNE 2009
EUREKA RESEARCH 3
Registered Office :
Corporate Office :
Mumbai Office :
7 Lyons Range, 2nd Floor, Room No. 1, Kolkata - 700001
B3/4, Gillander House, 8 N S Road, 3rd Floor, Kolkata - 700001Phone : 91-33-2210 7500 / 01 / 02, Fax: 91-33-2210 5184
909 Raheja Chamber, 213 Nariman Point, Mumbai-400021Phone : 91-22-2202 5941 / 5942e: [email protected]
DISCLAIMER : The information in this report has been obtained from sources, which Eureka Research believes to be reliable, butwe do not hold ourselves responsible for its completeness in accuracy. All estimates and opinions in this report constitute ourjudgement as of this date and are subject to change without notice. Eureka Research will not be responsible for the consequenceof 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 : [email protected]
Phone : 092315 49900 / 91-33-3918 0387
Period FY08 FY09 FY10E FY11E
Gross Sales
Excise Duty
Net Sales
Other Income
Total Income
Total ExpenditurePBIDT
Interest
PBDt
Depreciation
Tax
Profit After Tax
EPS
PE Ratio
12101
195
11906
190
12096
44857611
2
7609
68
1484
6057
76.9
2.624.01
50.3
8067
130
7937
190
8127
31364991
0.9
4990
60
970
3960
5338.3
50
5288.3
190.53
5516.2
2128.73387.5
0.8
3386.7
54.13
655.87
2337.8
24.7
8.18
3471.15
55.93
3415.22
69.44
3508.44
1499.442009
0.03
2008.97
48.97
653.82
1306.18
P & L Ratios FY08 FY09 FY10E FY11ETotal Expenditure to Sales
Depreciation to Sales
PBDITA Margin
PBT Margin
PAT Margin
37.7%
0.6%
63.9%
63.3%
50.9%
39.5%
0.8%
62.9%
62.1%
49.9%
40.3%
1.0%
64.1%
63.0%
44.2%
43.9%
1.4%
58.8%
57.4%
38.2%
Revised Financials in Rs. Cr.
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