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Sterlite Industries Overweight
STRL.BO, STLT IN
Zinc segments earnings above estimates driven by concentrate sales
• STLT’s majority owned subsidiary Hindustan Zinc (HZ) earnings
ahead of estimates: 3QFY11 zinc segment EBITDA at Rs15.07bn
(+9% y/y; +34% q/q) was ahead of both JPM estimates (Rs13.5bn) and
Bloomberg consensus (Rs13.2bn). PAT at Rs12.9bn (+12% y/y; +36%
q/q) was also ahead of consensus estimates of Rs11.25bn. Other Income
at Rs2bn was up 13% q/q, while tax rate stood at 19.1%. EBITDA
margins at 57.3% were however below our estimates of 59%. In our
view the higher than expected EBITDA and PAT was essentially driven
by concentrate sales in the current quarter.
• Segment beat driven mainly by concentrate sales: Overall net
revenues for the quarter were 15% ahead of our estimates and +19% q/q.
There were no major surprises in terms of saleable metal production
(zinc production at 178KT was +1% q/q, while lead production at
12.5KT was down 23% q/q driven by maintenance shutdown at the
Ausmelt and ISF smelters). The new Dariba Hydro Zinc smelter
contributed 46.5KT v/s 39KT in 1Q (annual capacity of 210KT).
However, there were concentrate sales of 36K DMT of zinc concentrate
and 12.8KT of lead concentrate (total sales value of Rs2.3bn). Silver
revenues were +7% q/q.
• Cost pressures lower than expected as power and fuel costs -3% q/q:
The key cost item for the zing segment exposed to rising prices is coal
costs and we were surprised by the 3% decline in power and fuel costs
sequentially. We believe this could largely be driven by timing lag given
that imported thermal coal prices are only moving up. Net zinc cost,
excluding royalty stood at $792/MT v/s $977/MT in Q2 which included
royalty. Stripping out royalty we estimate 2Q was at $754/MT. The
increase in costs was attributed to higher stripping costs and raw
materials.
• Cash balance increased to Rs130bn from Rs122bn in 2Q, announced
addition of 150MW wind power capacity: Trial production at the
Sindesar Khurd (SK) mine has started. However, while the 2Q press
release mentioned that the 100KT lead smelter at Dariba would be
commissioned by 3QFY11, the 3Q press release now expects the
commissioning by 4QFY11. Of the 160MW power plant at the Dariba
complex one unit of 80MW was synchronized in June 2010 and the
second 80MW has commenced trial runs.
• STLT’s conference call is on 25th Jan.
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