Sesa Goa margins take a hit, even as realisations spike

Despite impressive numbers, the stock market marked down the Sesa Goa stock by 1.1 per cent during Tuesday's trade.

The shrinkage in the company's operating profit margins this quarter, and concerns about the impact of the export duty on iron ore fines kicking in fully from this quarter, seem to have depressed the stock.

For the quarter ended March 2011, average realisations of medium-grade iron ore ruled 23 per cent higher than a year ago, driving Sesa Goa's consolidated net sales and profits during the fourth quarter ended March 2011 higher by 50 per cent and 20.3 per cent respectively.

Stagnant volumes

The company pulled off these numbers even as quarterly volumes remained virtually stagnant at 6.7 million tonnes. The Orissa and Karnataka operations which accounted for over a quarter of FY2010 sales remained depressed accounting for just over 10 per cent of the company's sales in the fourth quarter of FY2011.

The company's own realisations were up over 50 per cent owing to higher quarterly contract prices, derived from the higher spot prices leading into the quarter. The company sells roughly half of its output through longer term quarterly contracts, with half sold on a spot basis.

Operating expenses, which spiked by 75 per cent led by a tripling in export duties and royalties, however curbed operating margins, which shrank by 6 percentage points to 58 per cent. These are likely to remain a cause for concern for the company given the hike in export duties on iron ore fines to 20 per cent for the ongoing fiscal.

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