Sesa Goa Ltd’s earnings will be hit by the government’s decision to hike the export duty on iron ore from 20% to 30%. The decision has been taken to enhance domestic availability of iron ore. Sesa Goa’s share has already fallen by 52.3% in the past one year, chiefly due to the ban on iron ore mining in Karnataka and declining international iron ore prices.

Also, analysts believe that Sesa Goa’s size—it accounts for about 15 million tonnes (mt) of the total 500 mt of seaborne trade in iron ore—may not give it the power to influence the selling price in international markets.

International ore prices have been falling due to weak trends in steel output. Ore prices have fallen by more than 23% to $138.5 (around RS 7,355 today) a tonne in the past four months, and may continue to remain subdued.

Domestic realizations may not outstrip those in overseas markets because Goan ore is of low quality and is in demand mostly in the international markets. Angel Broking Ltd said in a research report that export duty expenses for Sesa Goa are expected to rise to 1,681 crore from a previous estimate of 1,390 crore for fiscal 2012 (FY12) and to 1,932 crore from the expected 1,546 crore for FY13.

Brokerages are cutting their profit after tax estimates for the company by 8% and 15% for FY12 and FY13, respectively, and estimates for earnings before interest, tax, depreciation and amortization are being pruned by 6% and 17%, respectively.

Full year FY12 earnings will be affected, despite just one quarter left in this fiscal, because 70% of the iron ore produced is exported typically in the second half of the year, after the rains end.

The company’s operations in Goa, from where it gets around 80% of its volume, has been affected, too. Jatin Damania of SBI Capital Markets Ltd said Goan mines are facing environmental clearance-related hurdles, causing several miners to halt mining. Also, there are restrictions on round-the-clock transportation in Goa.

Iron ore volume is expected to be lower in FY13 compared with FY12 due to the mining ban in Karnataka and uncertainty in Goa, according to analysts.

The Sesa Goa stock is trading at 4.2 times the one-year forward price-to-earnings multiple and has advanced 2% in the past two trading sessions. The continuing uncertainty surrounding its mining operations and the impact of higher export duties may result in the overhang on the stock persisting for some more time.

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