Sterlite Industries - Operationally sound, currency comes to rescue... - ICICIdirect

Sterlite Industries' (SIL) Q2FY13 results were better then our expectations on the back of forex gains, improved operational efficiencies and higher base metal premiums. The company reported Net Sales of Rs.11028.9 crore for the quarter, higher by 4.1% QoQ & by 8.8% YoY and was above our estimates of Rs.10507.1 crore. The growth in topline YoY was driven by healthy performance from the lead and silver business at Zinc India and commercial power at Sterlite Energy (SEL). The EBITDA came in at Rs.2527 crore (EBITDA margin of 22.9%), higher by 9.5% QoQ & by1.8% YoY and was above our estimates of Rs.2347.9 crore. During the quarter under review, the company reported a foreign exchange gain of Rs.219 crore due to appreciation of Indian rupee against US Dollar. The consequent PAT came in at Rs.1742.7 crore (our estimate: Rs.1085.4 crore), higher by 45% QoQ & by 74.7% YoY on the back of higher other income, lower effective tax rate & foreign exchange gains. Our valuation is based on the proposed merged entity, the Sesa-Sterlite combine wherein the target price of Sterlite Industries as per merger ratio comes out to Rs.94.

Key Highlights

- In copper division Net COP was higher on account of lower by product realisation and higher power costs.

- With respect to BALCO Aluminium premiums have risen substantially year on year reflecting the demand/supply gap of primary metal in the physical market. Premiums over LME price on aluminium ingots went up by about $150/tonne during Q2FY13

- EBITDA margin at VAL also improved due to higher conversion of primary metal into value added products

Derived value

We are valuing the company on the merged entity basis (Sesa-Sterlite) assuming the merger of Sterlite Inds with Sesa Goa will go through. Accordingly we have arrived at a target price of Rs.94 for Sterlite and assigned a HOLD rating on the stock.

Source : Equity Bulls

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