Вы находитесь на странице: 1из 3

Event Update | Mining

August 26, 2011

Metals & Mining


Mining ban extended in Karnataka
Supreme Court (SC) extends mining ban to Tumkur and Chitradurga districts: The

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Central Empowered Committee (CEC) had found that iron ore miners resorted to illegal mining activity in Chitradurga and Tumkur districts of Karnataka resulting in environmental damage and loss of forest cover. As per CEC, the level of illegal mining and the consequential environmental degradation in these two districts were similar to that in Bellary district. Thus, based on the CECs suggestions, the SC has extended the ban to Tumkur and Chitradurga districts. These two district account for approximately 20% of Karnatakas iron ore production. Earlier (on July 29, 2011), the SC had ordered a blanket ban on mining in Bellary district of Karnataka (accounts for 80% of Karnatakas iron ore production). Severe steel production cuts underway in the region: With extension of mining ban in Chitradurga and Tumkur districts, iron ore production will decline drastically in the state which will be followed up by severe cuts in steel production in the region. Some of the plants in the region have been already shut down while several plants are running at a lower utilisation levels on the back of shortage of iron ore to feed their furnaces. Steel industry in the region requires approximately 2.9mn tonnes of iron ore per month. Currently iron ore from Karnataka is used to feed plants of companies that include JSW Steel, Kalyani Steels, Mukand Steels, Kirloskar Ferrous, MSPL, BMM Ispat etc. Further, several sponge iron manufacturers in Tamil Nadu and Goa also source iron ore from Karnataka. On the supply front, NMDCs Bellary mine is the only major mine operating in the region; however, it is still to achieve its targeted run-rate of 1mn tonne per month from its Bellary mines. Auctions of piled-up inventory may provide some relief: The current iron ore inventory at Karnatakas mines is estimated at 25mn tonnes, which includes ~11mn tonnes of high-grade iron ore. As per JSW Steel, the SC is expected to provide guidelines on auction of this iron ore inventory on September 02, 2011. SC has indicated that it will ensure that the required amount of ore is released so that the steel industry does not suffer. Further, SC will look into rehabilitation and forestation package and henceforth, permit regulated mining in the region. This may take several months in our view.
Sesa Goas Chitradurga mine to be shut: Sesa Goa operates an iron ore mine

in Chitradurga district which would be shut down until further update by SC. Our earlier estimate of production and sales volumes from Chitradurga mine for FY2012 was 5mn tonnes (21.8% of Sesas total production volumes for FY2012). With mining ban in the region, we now prune our production and sales volume estimates for FY2012 and FY2013 as we expect no further production from Chitradurga mines. We lower our target price to `253 (`335), valuing the stock at 3.0x FY2013 EV/EBITDA and maintain Buy rating on the stock.

Please refer to important disclosures at the end of this report

Mining | Event Update

Exhibit 1: Revision of estimates


(` cr) Sales volumes (mn tonnes) Net sales EBITDA EBITDA margin (%) PBT Net income Net margin (%)
Source: Company, Angel Research

Earlier estimates FY12E FY13E

Revised estimates FY12E FY13E

Upgrade/(downgrade) (%) FY12E FY13E

23 10,675 5,001 46.9 5,105 3,625 34.0

25 12,172 5,676 46.6 5,785 4,050 33.3

18 8,711 4,041 46.4 4,169 2,960 34.0

20 10,012 4,615 46.1 4,750 3,325 33.2

(21.1) (18.4) (19.2) (51)bp (18.3) (18.4) (2)bp

(21.1) (17.7) (18.7) (51)bp (17.9) (17.9) (9)bp

JSW Steels freight costs to rise: Post this event, JSW Steel has informed that currently its blast furnace in its Bellary plant is operating at 80% utilisation levels while it is receiving iron ore supplies of ~40,000-50,000 tonnes per day from Bellary (NMDC mine), Orissa and Chhattisgarh regions. With blanket ban on mining in Chitradurga and Tumkur, JSW Steel will procure higher quantities of iron ore from Orissa and Chhattisgarh, which would raise its freight costs. However, it is challenging to estimate the extent of rise in freight costs currently. Although the stock has declined significantly since the last week, we maintain our Neutral view on the stock until further clarity on auction of iron ore inventory in Karnataka mine (on September 02, 2011).

Exhibit 2: Recommendation summary


Companies SAIL Tata Steel JSW Steel Sesa Goa NMDC CMP (`) 102 422 608 204 210 Target Price (`) 139 613 253 Buy Buy Buy Reco. Mcap Upside (` cr) 42,295 40,502 13,567 17,712 83,140 36 45 24 P/E (x) 9.7 6.1 11.7 4.3 11.8 7.6 5.4 5.3 6.1 10.3 P/BV (x) 1.0 0.9 0.8 1.4 3.4 0.9 0.8 0.7 1.2 2.7 EV/EBITDA (x) 7.0 5.3 7.2 0.1 7.2 5.4 4.4 4.2 2.5 5.8 RoE (%) 11.2 26.1 7.7 40.7 32.2 12.8 15.4 15.4 21.0 29.2 RoCE (%) 9.2 11.4 6.8 42.9 40.3 10.9 11.5 13.3 25.2 36.6 (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E

- Neutral - Neutral

Source: Company, Angel Research

August 26, 2011

Mining | Event Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Sesa Goa No No No No

JSW Steel No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 26, 2011

Вам также может понравиться