Motilal Oswal Maintains Buy on Sterlite Industries

STERLITE INDS 3QFY11: Barring zinc all businesses below estimate; Delays in power projects; EPS cut 3-5%; Maintain Buy

Sterlite Industries adjusted consolidated PAT increased 10% YoY to Rs11b lower than our estimate due to higher losses at VAL and lower other income.

Zinc (MIC) production increased 9% QoQ. The acquisition of Anglo's Skorpion mine was completed in Dec 2010. Skorpion produced 13.2k tons of refined zinc.

Copper cathode production grew 17% QoQ to 78,990 tons despite temporary shutdown following the Madras High Court order in September 2010

Aluminium production at Balco remained flat QoQ at 65,459 tons and cost of production increased 3% QoQ to US$1,795 largely due to rupee appreciation.

Revenue from power business declined 19% QoQ to Rs1.3b as realization fell sharply by 21% QoQ to Rs2.72/kwh and volumes grew 10% to 454m units.

FY11 and FY12 EPS are cut by 5% and 3% to Rs12.8 and Rs21.4, respectively, after factoring in (1) positive contribution from zinc acquisition, and (2) slippage in Sterlite Energy's power unit. Stock is trading at FY12 P/E of 8.4x and EV/EBITDA of 5.4x. We value the stock at Rs221 based on STOP. We remain positive on the stock as both zinc and energy businesses have potential to drive earnings stronger than estimates. Maintain Buy.

Source : Equity Bulls

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