Sesa Goa valuations amongst cheapest in metals and mining industry

With a price to earnings multiple of 6.0 times, iron ore mining major Sesa Goa is the cheapest stock on the BSE Metal Index and the CNX Metal Index, which trade at 11.0 times and 11.2 times, respectively.

While the BSE Metal Index and the CNX Metal Index have each risen 10% year to date, the stock of Sesa Goa has gained 20% after posting better than expected results for two consecutive quarters.

The stock plummeted 93% during the first two quarters of the last fiscal year as the domestic iron ore mining industry took a turn for the worse.

Mining ore was banned in the state of Karnataka to clamp down on illegal activities and the export duty was hiked to aid the domestic steel industry. By the end of the September 2011 quarter, the quarter which followed immediately after the mining ban, Sesa Goa’s profit dropped to Rs 1.28 crore.

During the third and fourth quarter of the 2011-12 fiscal, the company reported better than expected profits of Rs 691.5 crore and Rs 1162.11 crore. On account of this performance, 20 out of 41 analysts have recommended buying the stock with a target price of Rs 210, though concerns on the mining industry still persist.