Sterlite Industries - 3QFY13 results below expectations - Motilal Oswal

Sterlite Industries' (STLT) adjusted consolidated PAT declined 18% QoQ to INR12.5b, below our estimate of INR13.9b. Sterlite Energy (STLE), Bharat Aluminium (BALCO) and Vedanta Aluminium (VAL) reported losses. Attributable losses from VAL increased 3.7x QoQ to INR2.26b due to increased forex losses. Zinc (international) PAT increased 8% QoQ to INR2.26b.

EBITDA declined 8% QoQ to INR23.3b, below our estimate of INR26.9b, dragged by Copper (lower by-product credit; lower TcRc), Power (evacuation problem) and Hindustan Zinc (lower silver volumes).

Segment-wise outlook and update

While Copper TcRc is expected to improve, by-product realizations are likely to remain subdued due to lower demand from the fertilizer industry.

PLF of the Power business suffered due to evacuation-related issues, which are likely to be addressed significantly on easing of bottlenecks. BALCO's surplus power is likely to shrink in the interim, as the 325ktpa smelter is expected to ramp up ahead of the 1,200MW CPP expansion. The factory license for the 1,200MW expansion is under temporary suspension.

BALCO's coal block has received stage-II forest clearance, but the mining lease is yet to be signed.

VAL is considering reviving its 1.25mtpa phase-II smelter in view of improved metal prices and subdued merchant power rates. We remain skeptical because sourcing large quantities of third-party alumina is challenging.

Zinc business (both India and international) is expected to remain strong. In India, growth in mine production will drive volume growth and earnings. Maintain Buy, with an SOTP-based target price of INR124 The merger with Sesa Goa is awaiting approvals from the Madras and Goa High Courts. On merged entity basis, the stock is trading at 5.6x FY15E EPS, 0.6x FY15E BV and at an EV of 4.9x FY15E EBITDA. Maintain Buy.

Source : Equity Bulls

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