Stock recommendation: Sesa Goa

5/28/2008
India’s largest iron ore exporter, Sesa Goa is on investor’s radar after the announcement of good results, stock split and bonus. All the brokers and analysts are bullish on this stock due to its growth prospects and reasonable valuations despite Government intervention. IT department sent a notice to the Seas Goa management may be a dampener over short term. Stock will give at least 50-60% annual returns. Accumulate aggressively on every fall. Sesa Goa results: Sesa Goa announced wonderful results in Q4. 250% increase in net profit in Q4FY08 and 108% increase in net sales and it outperformed analysts’ expectations.
Chart courtesy: Bloomberg.

Sesa Goa - Stock price analysis:

It is one of the cheapest stocks among outstanding performers. It will at least give 50-60% annual returns even by conservative estimates. 200% rise in EBITDA is exceptional. It is currently available at cheap valuations when you compare it with global mining giants. Stock will definitely catch FII attention within a short time.

CMP: 4,066.
P/E: 10.3
P/EFY09: 7.6 (Estimates)
P/EFY2010: 5.7 (Estimates).

EPS: 391 which is just 164 one year back.
I Year high-low: 4,400-1,400.
Face Value: 10.

Sesa Goa target price:

Short term: It will move between 3,900-4,300 and struggle to break resistance zones. Once it breaks, it may move to 4,800-5,000 by the time of record date. Be cautious about negative triggers.

Short term triggers:

Positive: Stock split and bonus.
Negative: Government intervention and IT notice.

Long term triggers:

1. Demand for Iron ore from China will continue.
2. Cheap valuations when compared to global mining stocks.
3. Increase in coke price will add value.
4. Large expansion plans especially in pig iron.
5. Shipping also has huge prospects.

1 Year target: 5,500-5,700 (Conservative estimates). If market sentiment will change, it will touch even 6,000-6,200.

Verdict: It is a must buy for long term investors. Accumulate it for long term without hesitation. All the natural resources companies will give outstanding returns if you can stay invested for 3-4 years. Sesa Goa may give 20-30% returns over medium term due to stock split and bonus. Record date is yet to be announced.