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STERLITE INDUSTRIES (INDIA)
Revision in estimates
Anglo acquisition to be earnings accretive
Sterlite Industries India (SIL) has completed acquisition of the zinc and lead
businesses of Anglo American (Anglo) for a total consideration of ~USD 1.5 bn
(excluding cash in Anglo). We believe the acquisition will contribute ~14% to
consolidated EBITDA in FY12E and will be earnings accretive. We incorporate
Anglo in our earnings estimate and value it at ~USD 2.4 bn.
Sterlite Energy facing coal procurement issues
Though Sterlite Energy (SEL) has received coal linkage for its entire 2,400 MW
power plant at Jharsuguda, we expect availability of only 50% linkage coal as
Coal India faces production issues. Moreover, this coal from MCL will now be
available at a higher cost. The balance will be procured through a mix of
e-auction and imports. We raise coal cost 80% and cut the effective PLF from
65% to 53% for FY12E, revising down SEL’s EBITDA 43% from earlier estimate.
Building in 12% higher TcRc for copper business
We expect contract TcRc to settle at 13.5c/lb for FY12E compared to earlier
estimate of 12c/lb, in light of higher availability of copper concentrate, resulting
in a 5% EBITDA upgrade for the copper business for FY12E.
Upgrading contribution from silver in FY12E by ~90%
The earlier–than-anticipated trial production at the SK mine (positive surprise)
will significantly increase silver production (high silver content) and contribute
significantly to EBITDA. We are revising up our silver estimate ~26% to 290 tpa
for FY12 and also our silver realization to INR 44/kg considering the buoyancy in
silver prices. Silver will potentially contribute 9.6% to SIL’s FY12E EBITDA. We
also raise zinc prices by USD 50/t for FY12 and FY13.
Outlook and valuations: Zinc holds the key; maintain ‘BUY’
Incorporating the various developments across business segments, we are
revising up our overall EBITDA 9% and 11% for FY12E and FY13E, respectively.
However, we are revising down FY12E net profit 1% due to reduced other
income resulting from cash outflow for the Anglo acquisition and higher capital
charges for SEL and VAL. We retain ‘BUY/Sector Performer’ with fair value of
INR 206/share (previous INR 205/share).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
STERLITE INDUSTRIES (INDIA)
Revision in estimates
Anglo acquisition to be earnings accretive
Sterlite Industries India (SIL) has completed acquisition of the zinc and lead
businesses of Anglo American (Anglo) for a total consideration of ~USD 1.5 bn
(excluding cash in Anglo). We believe the acquisition will contribute ~14% to
consolidated EBITDA in FY12E and will be earnings accretive. We incorporate
Anglo in our earnings estimate and value it at ~USD 2.4 bn.
Sterlite Energy facing coal procurement issues
Though Sterlite Energy (SEL) has received coal linkage for its entire 2,400 MW
power plant at Jharsuguda, we expect availability of only 50% linkage coal as
Coal India faces production issues. Moreover, this coal from MCL will now be
available at a higher cost. The balance will be procured through a mix of
e-auction and imports. We raise coal cost 80% and cut the effective PLF from
65% to 53% for FY12E, revising down SEL’s EBITDA 43% from earlier estimate.
Building in 12% higher TcRc for copper business
We expect contract TcRc to settle at 13.5c/lb for FY12E compared to earlier
estimate of 12c/lb, in light of higher availability of copper concentrate, resulting
in a 5% EBITDA upgrade for the copper business for FY12E.
Upgrading contribution from silver in FY12E by ~90%
The earlier–than-anticipated trial production at the SK mine (positive surprise)
will significantly increase silver production (high silver content) and contribute
significantly to EBITDA. We are revising up our silver estimate ~26% to 290 tpa
for FY12 and also our silver realization to INR 44/kg considering the buoyancy in
silver prices. Silver will potentially contribute 9.6% to SIL’s FY12E EBITDA. We
also raise zinc prices by USD 50/t for FY12 and FY13.
Outlook and valuations: Zinc holds the key; maintain ‘BUY’
Incorporating the various developments across business segments, we are
revising up our overall EBITDA 9% and 11% for FY12E and FY13E, respectively.
However, we are revising down FY12E net profit 1% due to reduced other
income resulting from cash outflow for the Anglo acquisition and higher capital
charges for SEL and VAL. We retain ‘BUY/Sector Performer’ with fair value of
INR 206/share (previous INR 205/share).
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