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UBS Investment Research
Sterlite Industries
A value play at current levels
Underperformance due to uncertainty over growth; good risk-reward
Sterlite has significantly underperformed the Sensex and the BSE Metal Index by 25%
and 9% in the past 12 months. This is despite rising non-ferrous prices due to
uncertainty over the growth profile on: 1) aluminium expansion at VAL/Balco being on
hold due to bauxite issues (rejection of Niyamgiri mining); and 2) 400ktpa Tuticorin
copper smelting expansion also being on hold. However, we believe Sterlite offers
value at current levels as we expect EBITDA/PAT to grow at a 29%/24% CAGR over
FY10-13 with ROIC of c18% in FY12/13. It has successfully completed the acquisition
of Anglo Zinc assets.
Direct play on strong base metal prices; UBS +ve on medium-term outlook
We remain positive on the medium-term price outlook of zinc, aluminium and copper.
We expect the Zinc and Lead business to drive earnings for the company. We estimate
ROE will rise to 16%/15% in FY12/13 from 12.9% in FY10 due to the strong pricing
outlook for base metals, volume growth in Hindustan Zinc (HZL), silver capacity
expansion, surplus power at Balco, and the acquisition of Anglo Zinc’s assets.
We do not value expansion projects; but potential upside is possible
We will not value any expansion in the aluminium vertical in Vedanta Aluminium
(VAL) or Balco till we see clarity on bauxite mines. If Sterlite gets alternate bauxite
mines (other than Niyamgiri), we think it will be significantly positive as it would
enable expansion of its refining/smelting capacities in VAL/Balco.
Valuation: maintain Buy with new sum-of-the-parts-based PT of Rs215
We value Sterlite’s key businesses (copper, HZL, Balco) on March 2013E
EV/EBITDA of 5.5x (average of the last two cycles) and investments in Anglo Zinc,
VAL, etc at book value. We lower our 2011/12/13 EPS estimates from
Rs17.44/22.87/22.97 to Rs13.45/20.94/21.21.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Sterlite Industries
A value play at current levels
Underperformance due to uncertainty over growth; good risk-reward
Sterlite has significantly underperformed the Sensex and the BSE Metal Index by 25%
and 9% in the past 12 months. This is despite rising non-ferrous prices due to
uncertainty over the growth profile on: 1) aluminium expansion at VAL/Balco being on
hold due to bauxite issues (rejection of Niyamgiri mining); and 2) 400ktpa Tuticorin
copper smelting expansion also being on hold. However, we believe Sterlite offers
value at current levels as we expect EBITDA/PAT to grow at a 29%/24% CAGR over
FY10-13 with ROIC of c18% in FY12/13. It has successfully completed the acquisition
of Anglo Zinc assets.
Direct play on strong base metal prices; UBS +ve on medium-term outlook
We remain positive on the medium-term price outlook of zinc, aluminium and copper.
We expect the Zinc and Lead business to drive earnings for the company. We estimate
ROE will rise to 16%/15% in FY12/13 from 12.9% in FY10 due to the strong pricing
outlook for base metals, volume growth in Hindustan Zinc (HZL), silver capacity
expansion, surplus power at Balco, and the acquisition of Anglo Zinc’s assets.
We do not value expansion projects; but potential upside is possible
We will not value any expansion in the aluminium vertical in Vedanta Aluminium
(VAL) or Balco till we see clarity on bauxite mines. If Sterlite gets alternate bauxite
mines (other than Niyamgiri), we think it will be significantly positive as it would
enable expansion of its refining/smelting capacities in VAL/Balco.
Valuation: maintain Buy with new sum-of-the-parts-based PT of Rs215
We value Sterlite’s key businesses (copper, HZL, Balco) on March 2013E
EV/EBITDA of 5.5x (average of the last two cycles) and investments in Anglo Zinc,
VAL, etc at book value. We lower our 2011/12/13 EPS estimates from
Rs17.44/22.87/22.97 to Rs13.45/20.94/21.21.
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