Maintain 'hold' on Sesa Goa – TP reduced to Rs.216 - Geojit BNP Paribas Financial Services Limited

Hold rating maintained on Sesa Goa with a lower target price of Rs.216 as against the earlier target of Rs.263.

Though the company has reported strong results for 3QFY12, questions on sustainability of volume persist.

Production of ore was 29% lower yoy in 3QFY12. Despite production miss, the company could report better numbers for the quarter because of inventory destocking. However, this trend is unlikely to sustain as inventory in Karnataka is close to exhaustion.

Any further regulatory action in Goa will add pressure on volume.

Recently, export tax has been hiked to 30%. This would add pressure on earnings going forward.

Remain cautious on company's production volumes given delay in Supreme Court decision on restart of mining in Karnataka and ongoing regulatory action against mining in Goa. Clarity on Goa will emerge only after Goa Assembly elections, scheduled for March 2012.

Earlier than expected restart of mining in Karnataka is the key upside risk and any further regulatory action on mining in Goa will be the key downside risk.

Source : Equity Bulls

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