Sterlite Industries - 1QFY2014 Result Update - Angel Broking

Sterlite Industries (Sterlite) reported lower-than-expected 1QFY2014 results. Both, the top-line as well as net profit were lower than our expectations, mainly due to lower-than-expected performance from the Copper segment. We recommend Buy rating on the stock.

Top-line declines due to Copper segment: The company's net sales declined 22.7% yoy to Rs.8,190cr (below our estimate of Rs.8,372cr). The decline in net sales was mainly in the Copper segment due to temporary shutdown of the Tuticorin copper smelter in this quarter. However, the same was partially offset by higher revenues from the Power segment due to higher power sales from the Jharsuguda power plant. Copper segment revenues declined 52.3% yoy to Rs.2,446cr.

Copper and Aluminium segments reported EBIT loss: On the operating front, Sterlite's EBITDA declined 5.9% yoy to Rs.2,173cr and the EBITDA margin stood at 26.5% (below our estimate of 28.6%) mainly due to a loss of Rs.51cr and Rs.26cr in the Copper and Aluminium segment respectively.

Higher interest costs and taxes dent PAT: The company's interest costs increased by 49.6% yoy to Rs.362cr due to non-capitalization of interest on the Jharsuguda plant and the tax rate was also higher at 16.8% compared to 14.7% in 1QFY2013; hence the adjusted net profit decreased by 18.0% yoy to Rs.1,164cr, which was below our estimate of Rs.1,198cr.

Outlook and valuation: We expect Sterlite to benefit from the expansion of Zinc-Lead smelting capacity during FY2014-15 although its Aluminium segment's profitability is expected to remain under pressure. Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, the valuation of Sterlite will mirror the valuation of the consolidated company - Sesa Sterlite. We recommend a Buy rating on the stock.

Source : Equity Bulls

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