Sterlite Industries - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Sterlite Industries (Sterlite) reported consolidated net sales growth of 7.6% yoy. However, subdued performance from the aluminium segment dragged the company's profitability. Adjusted PAT for the quarter decreased by 29.6% yoy. We recommend Accumulate on the stock.

Top-line growth driven by zinc and power segments: For 4QFY2012, Sterlite's consolidated net sales increased by 7.6% yoy to Rs.10,763cr, in-line with our estimate of Rs.10,912cr. Net sales growth was driven by increase in power segment sales (+230.4% yoy to Rs.737cr).

Aluminium segment dents Sterlite's profitability: Despite net sales growth of 7.6% yoy, Sterlite's EBITDA decreased by 11.3% yoy to Rs.2,705cr mainly due to a decline in profits from the aluminium segment. EBIT of the aluminium segment declined to Rs.23cr in 4QFY2012 compared Rs.195cr in 4QFY2011. Sterlite's associate, Vedanta Aluminium also reported loss of Rs.542cr in 4QFY2012 (Sterlite's share of loss – Rs.160cr) compared to loss of Rs.268cr in 4QFY2011. Sterlite reported exceptional items related to net incidental damages payable to Asarco of Rs.423cr and exchange gain of Rs.331cr in 4QFY2012. Adjusted net profit decreased by 29.6% yoy to Rs.1,377cr, in-line with our estimate of Rs.1,311cr.

Outlook and valuation: We expect Sterlite to benefit from the expansion of zinc-lead smelting capacity during FY2013-14. While we expect the aluminium segment's profitability to remain under pressure, the current stock price factors these concerns. At the CMP, the stock is trading at an inexpensive valuation of 3.4x FY2013E and 2.7x FY2014E EV/EBITDA. Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, valuation of Sterlite will mirror the valuation of consolidated company, Sesa Sterlite. We value Sterlite at Rs.123, based on the SOTP methodology and recommend Accumulate on the stock.

Source : Equity Bulls

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