Sadovaya monthly sales plunge 47% mom in October, no recovery seen yet

October coal mining plunged 47% mom to 30 kt owing to suspended production at its mining  subsidiaries, Sadovaya Group reported (SGR PW) on Nov. 16. Monthly coal sales dropped 72% mom to 16 kt, or pre-2010 levels. In 10M12, coal mining still rose 8.8% yoy to 403 kt, but coal sales fell 47% yoy to 537 kt. During the conference call on Nov. 16, management didn’t indicate when it plans to restart coal extraction or what possible coal sales volumes it expects to reach in 4Q12.

Roman Topolyuk: Sadovaya’s October operating result, caused by an abrupt idling of its mines, is exacerbated by an absence of any visible improvement in its market position. The company reported EBITDA of USD 7.3 mln in 9M12. With minimal, if any, sales in November-December, we expect Sadovaya will report negative EBITDA in 4Q12. SGR stock is trading at EV/EBITDA multiple of above 8x vs. global peers median of 7.3x. The stock still looks expensive despite a 53% correction since mid-October. On the debt side, Sadovaya also approached alarming levels and may experience some pressure from creditors: we estimate net debt exceeding EBITDA  by about 5x on 2012 projected EBITDA.