Sesa Goa announced its acquisition of Dempo group’s mining assets in an all cash deal of Rs175 billion.
Under the agreement Sesa has acquired all outstanding common shares of VS Dempo & Co Pvt Ltd (VSD), which in turn holds 100% equity shares of Dempo Mining Corporation Pvt Ltd & 50% equity shares of Goa Maritime Pvt Ltd.
VSD owns or has the rights to mineable reserves and resources estimated at 70 million tonnes of iron ore in Goa.
Acquisition of Dempo augurs well for Sesa’s target of 50 million tons of iron ore sales. The acquisition increases the company’s reserves and resources by 29% to 310mn tonnes.
The Sesa management has indicated at huge cost optimization opportunity in Dempo over the next two years.
However, ramping up of production in Dempo will take 18-24 months on account of the various clearances required.
We believe that this is a positive taken by the company and increases our belief in the management’s ability to deliver on its promise of 20-25% y-o-y growth in sales volume over and also to utilize its strong balance sheet to enhance Sesa’s size and competitiveness.
The acquisition of Dempo is expected to add 15% and 18% to Sesa’s topline and 14.7% and 15% to the bottomline in FY10 and FY11 respectively.
Dempo’s acquisition will increase Sesa’s FY11E EPS by Rs3.9 to Rs23.