Sterlite Industries - Disappointing operational show - Centrum

Sterlite Industries' (SIIL) EBITDA stood at ~Rs23.3bn, marginally below our estimates of Rs23.7bn on account of disappointing operational show across operations (mainly power and domestic zinc). Margin stood at 21.8%, lower by 110bps QoQ on account of lower margins in domestic zinc (lower zinc output and higher custom volume share), copper (high costs and lower by-product realizations) and low profitability from SEL (power volumes lower by ~19% QoQ) merchant power operations.

Positive surprise was delivered on i) higher margin from zinc international business and ii) higher than rated capacity volumes in aluminium combined with much higher premiums for physical metal. We see volume growth getting tapered down in power operations and also remain concerned on the performance of VAL and BALCO going ahead with smelter commissioning without captive alumina.

We recommend Reduce with a target price of Rs105, which is based on our SOTP valuation of the proposed merged group entity Sesa Sterlite.

Source : Equity Bulls

Keywords