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Research
Sterlite Industries - All-round performance - ElaraCapital
Posted On : 2013-05-03 22:47:01( TIMEZONE : IST )
Power-led growth
After posting robust performance in its zinc business, Sterlite Industries (STLT) beat our EBITDA expectations by 11% (EBITDA of INR32.9bn, up 41% QoQ), thanks to better performance from its power and copper segment. Sterlite Energy (SEL)'s performance exceeded our expectations due to lower power generation cost. Power cost declined ~20% QoQ to INR1.76/unit due to usage of higher proportion of linkage coal and lower e-auction prices. Copper segment got benefitted due to higher sale of precious metals and sale of surplus power from the newly installed 80MW power plant (EBIT doubled QoQ to INR3.3bn). Balco's EBITDA increased 33% QoQ on account of higher sales volumes and higher premium while VAL's operating performance improved due to low power cost. STLT's reported profit of INR19.2bn included INR778mn MTM forex gain and INR1bn penalty imposed on copper smelter. Adjusted for the same, PAT increased 50% QoQ to INR19.4bn.
Awaiting triggers to unfold; maintain Accumulate
Though we have not incorporated the following triggers in our Target price but expect it to be unfolded in the next one year which would lead to re-rating of the stock. (1) Increasing visibility on bauxite sourcing post Supreme Court judgment leading to reduced negative value to VAL (2) Buying Government's stake in HZL which will remove the holding company discount (3) Start-up of coal block at Balco, providing visibility to its current earnings. We expect FY14 EBITDA to grow by 13% YoY driven by the volume growth across its business segments (domestic zinc-lead operation, power volumes at Sterlite's copper, Sterlite Energy and Balco and aluminium at Balco). The evacuation problem at Sterlite Energy and Balco (due to grid failure) has further eased. The company is being valued on a post merger basis which is expected to be completed soon. We have valued the combined entity at INR171/share, with STLT's fair value being INR103/share (0.6x INR171/share). Maintain Accumulate.
