Maintain 'Accumulate' on Sesa Goa with target of Rs 352: Kotak

MUMBAI: Kotak Securities has maintained ‘Accumulate’ recommendation on Sesa Goa with a price target of Rs 352 per share after company’s plans to acquire 20% stake in Cairn India for ~ $3 to 3.5 billion.

“Sesa Goa EPS estimates for FY11E is revised marginally to Rs.44.7 vs. Rs.44.8 earlier while FY12E EPS estimate is revised upward to Rs.50.9 vs.47.9 earlier.

We are now valuing Sesa Goa on 7x (vs.5x) EV/EBITDA for FY11E. Higher multiple is given to capture value of strategic investment in Cairn India wherein there would be significant earnings generation which would not be captured in Sesa Goa's EBITDA calculation.

We arrive at target price of Rs 352. We maintain our accumulate rating as we believe the valuation are reasonable for Sesa Goa @ 6.5x EV/EBITDA and 7.2x P/E for FY11E whose organic expected growth story remain intact and there is likely upside from announced strategic investment in Cairn India,” the report said.