Sesa Goa’s stock price has almost double in last two months, initially driven by attractive valuation and later on positive industry data emerging from China that constitutes >80% of company’s iron ore sales.
We believe the stock has immense value once the global GDP is back on growth track but it would be presumptuous to assume so based on the emerging green shoots in the China/global economy.
We downgrade the stock to REDUCE from Buy with an unchanged price target of Rs141. Our valuation remains unchanged based on FY10E 3x EV/EBITDA estimates.
The stock breached our target price yesterday and offer’s limited upside to our target price. We advise exiting the stock on any further rally from these levels.