The Hindu Business Line : Sesa Goa moves past open offer price

Sesa Goa, country’s largest iron ore exporter, on Thursday shot up over four per cent to close at Rs 2,311.30 and topped Vedanta’s price for the open offer, which closed on Wednesday.

According to analysts, even though several negatives such as sharp drop in dollar value against rupee and spurt in ocean freight rates have recently been at play in determining valuation of the miner-exporter’s stock, there are quite a few possible reasons for investors to ignore them, at least temporarily.

Ex-dividend

Mr Arun Kejriwal, a market analyst, felt that the stock is going ex-dividend technically fromFriday. (Shareholders’ name should appear on the company’s register on September 24 to be eligible for Rs 25 final dividend). The response to the open offer will also be known tomorrow.

“Going by the volume surge in the cash market on Thursday, an intelligent guess could be that some investors may have spurned the offer and decided to stay invested”, he added.

Mr P.K. Mukherjee, Managing Director of the company, told Business Line today from Goa that revenues and earnings in the current quarter, affected by rains, traditionally remained lower than the rest of the year.

The company has been able to mark up its annual contract prices this year at par with international rates. Analysts said that an unabated demand for iron ore from China holds a prospect of double-digit price escalation next year also.

Fundamentals

Mr Mukherjee, however, said on the cost side, Sesa Goa was largely protected from the sharp increase in freight rates this fiscal. “Majority of export contracts to different geographies are not vulnerable to ocean freight rate fluctuations. The company’s exports to Europe, representing about 11 per cent, have also been protected this year from freight rate vagaries”, he said.

Its exports to China, Taiwan, South Korea and Japan contribute about 74 per cent.

He admitted that the appreciating rupee has an adverse impact on the company’s revenue and earning. “But, we have not calculated the figures as yet,” he added.

In his note to the accounts for the quarter to June 30 Mr Mukherjee had stated that the decrease in profit for the quarter was primarily due to incidence of export duty (Rs 300 per tonne imposed from March 1 and later reduced to Rs 50) and appreciation of the rupee vis-À-vis dollar as its exports are dollar denominated.

Freight cost

Among the other factors putting pressure on earnings are higher inland freight costs (particularly from its Orissa mines) and lower realisation from metcoke, one of the company’s products, than last fiscal.

Analysts said that an unabated demand for iron ore by China holds a prospect of a double-digit price escalation next year too. Brazil may continue to remain uncompetitive like this year on account of ocean freight rates.

Sesa Goa’s prospecting licence in Jharkhand could be viewed, according to analysts as an asset in anticipation of an easier transfer to mining licence (as indicated by the Union Minister early this month) under the proposed mining policy, likely to be placed in the winter session of Parliament.

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