Sterlite Industries - 1QFY2013 Result Update - Angel Broking

Sterlite Industries' (Sterlite) 1QFY2013 net profit was higher-than expected mainly due to lower-than-expected tax rate. We recommend Accumulate rating on the stock.

Top-line growth driven by copper and power segments: For 1QFY2013, Sterlite reported consolidated net sales growth of 7.8% yoy to Rs.10,591cr, marginally above our estimate of Rs.10,440cr, driven by higher net sales in copper and power segment. Copper and Power segment revenues grew 13.8% and 42.3% yoy to Rs.5,125cr and Rs.875cr, respectively

Aluminium segment continues to dent Sterlite's profitability: Despite net sales growth of 7.8% yoy, Sterlite's EBITDA decreased by 16.3% yoy to Rs.2,308cr mainly due to a decline in profitability of aluminium segment. Balco's aluminium production fell by 1.7% yoy to 60kt, while its revenue increased by 3.0% yoy to Rs.780cr. Aluminium cost of production at Balco increased by 16.8% yoy to Rs.1,03,542/tonne on account of higher proportion of low-quality bauxite. Sterlite's associate, Vedanta Aluminium also reported loss of Rs.565cr in 1QFY2013 (Sterlite's share of loss - Rs.167cr) compared to loss of Rs.360cr in 1QFY2012.

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. 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.115, based on the SOTP methodology and recommend Accumulate rating on the stock.

Source : Equity Bulls

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