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Sterlite Industries- Value at discount
We expect Sterlite Industries to post earnings CAGR of 36% over FY11-13, driven
by volume growth in zinc, lead and silver, and merchant power sales by Sterlite
Energy and Balco. As the company has used some of its cash to acquire zinc
assets from Anglo, the gap between RoIC and RoE is narrowing.
Zinc, lead and silver - inorganic and organic growth to pay off
We expect the attributable zinc, lead and silver volumes to grow at a rapid CAGR
of 37%, 51% and 45%, respectively to 837k tons, 120k tons and 211 tons over
FY11-FY13 on account of organic growth at Hindustan Zinc and addition of Anglo's
business. The growth momentum is likely to be maintained, as full ramp-up of
capacity progresses.
The Rampur Agucha mine has been expanded by 20% to 6mtpa and the Sindesar
Kurd (SK) mine is being expanded from 0.5mtpa to 1.5mtpa.
Production at Lisheen, Skorpion and Black mountain is likely to be maintained.
The Gamsberg project has the potential to add ~400ktpa capacity over 3-4 years
at a capex of ~US$1b.
The outlook for zinc prices remains bullish due to expected depletion of few largescale
mines. We expect segmental attributable EBITDA to grow at a CAGR of
26% over FY11-FY13 to Rs58b. The international zinc business will add Rs14b-
17b to the Rs58b EBITDA, while other income will be lower by Rs4b.
Power sales to deliver growth; aluminum expansions on hold
The company is looking to cash in on the merchant sale of power post the
commissioning of Sterlite Energy's 2,400MW and Balco's 1,200MW projects over
the next 12-15 months. Aluminum expansions at both Vedanta Aluminum (VAL)
and Balco have been put on hold.
Sterlite Industries will be selling an attributable 3,111MW to third parties as against
~140MW in FY11. Power sales will add Rs30b to EBITDA over FY11-FY13.
Given the shortage in the country, sourcing coal is a bit challenging. We factor
average coal cost of Rs1,600/ton. Balco's captive coal mines, expected to be
operational in six months subject to stage-2 forest clearances, will reduce fuel
costs significantly.
Trades at significant discount to SOTP value; Buy
Sterlite has underperformed due to a trail of setbacks - bauxite mining, minority buyouts,
Tuticorin smelter, etc. Yet, earnings growth remains intact. The stock now trades at a
significant discount to its intrinsic valuation of Rs221 (based on SOTP), implying that
negatives are factored in. We believe the stock will get re-rated once projects get
delivered. Maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries- Value at discount
We expect Sterlite Industries to post earnings CAGR of 36% over FY11-13, driven
by volume growth in zinc, lead and silver, and merchant power sales by Sterlite
Energy and Balco. As the company has used some of its cash to acquire zinc
assets from Anglo, the gap between RoIC and RoE is narrowing.
Zinc, lead and silver - inorganic and organic growth to pay off
We expect the attributable zinc, lead and silver volumes to grow at a rapid CAGR
of 37%, 51% and 45%, respectively to 837k tons, 120k tons and 211 tons over
FY11-FY13 on account of organic growth at Hindustan Zinc and addition of Anglo's
business. The growth momentum is likely to be maintained, as full ramp-up of
capacity progresses.
The Rampur Agucha mine has been expanded by 20% to 6mtpa and the Sindesar
Kurd (SK) mine is being expanded from 0.5mtpa to 1.5mtpa.
Production at Lisheen, Skorpion and Black mountain is likely to be maintained.
The Gamsberg project has the potential to add ~400ktpa capacity over 3-4 years
at a capex of ~US$1b.
The outlook for zinc prices remains bullish due to expected depletion of few largescale
mines. We expect segmental attributable EBITDA to grow at a CAGR of
26% over FY11-FY13 to Rs58b. The international zinc business will add Rs14b-
17b to the Rs58b EBITDA, while other income will be lower by Rs4b.
Power sales to deliver growth; aluminum expansions on hold
The company is looking to cash in on the merchant sale of power post the
commissioning of Sterlite Energy's 2,400MW and Balco's 1,200MW projects over
the next 12-15 months. Aluminum expansions at both Vedanta Aluminum (VAL)
and Balco have been put on hold.
Sterlite Industries will be selling an attributable 3,111MW to third parties as against
~140MW in FY11. Power sales will add Rs30b to EBITDA over FY11-FY13.
Given the shortage in the country, sourcing coal is a bit challenging. We factor
average coal cost of Rs1,600/ton. Balco's captive coal mines, expected to be
operational in six months subject to stage-2 forest clearances, will reduce fuel
costs significantly.
Trades at significant discount to SOTP value; Buy
Sterlite has underperformed due to a trail of setbacks - bauxite mining, minority buyouts,
Tuticorin smelter, etc. Yet, earnings growth remains intact. The stock now trades at a
significant discount to its intrinsic valuation of Rs221 (based on SOTP), implying that
negatives are factored in. We believe the stock will get re-rated once projects get
delivered. Maintain Buy.
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