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Sterlite Industries Overweight
STRL.BO, STLT IN
Zinc Segment-Higher Pb+Silver conc realization and
lower CoP drive above expectation results
• Hindustan Zinc (HZ), Sterlite Industries’ subsidiary, reported
4QFY11 earnings ahead of estimates: HZL reported 4QFY11
EBITDA at Rs19.69bn (+27% y/y; +31% q/q), well ahead of both JPM
estimates (Rs15.6bn) and Bloomberg consensus (Rs16.1bn). The higher
than expected EBITDA was driven by strong zinc, silver volumes and
high Pb conc realization aided by higher silver content. PAT at Rs17.7bn
(+43% y/y; +37% q/q) was also ahead of estimates (JPMe: Rs13.0bn;
BBGe: Rs13.8bn).
• Volumes inline with production numbers: As reflected in the
production numbers reported earlier this month, zinc sales volume was
strong at 194kt (vs. JPMe 181kt), up 9% q/q and lead volumes improved
to 16kt (+32% q/q as 3Q was impacted by maintenance shutdown).
Silver volume was higher at 44tonnes vs. 29.5tonnes in 3Q and JPMe at
32tonnes. Post the commissioning of the Pb smelter in 1Q and
subsequent ramp up, the refined silver production will increase to an exit
rate of 100tonnes/qtr in FY12E. Adjusted for reported volumes, our
EBITDA and PAT were still 14-20% below the reported numbers driven
by lower than expected metal CoP and higher Pb concentrate sales.
• Silver rich SK mine helps Pb concentrate ASPs: While the increase in
LME prices (Zn +4% q/q and Pb +9% q/q) aided sales, the higher silver
prices over the last few months drove 25% increase in silver ASPs (ASPs
were 5% higher than our estimates). Realization on lead concentrate
sales nearly doubled q/q driven by the higher silver content in the Pb
concentrate sales (silver-rich SK mine contributed ~50% of the Pb
concentrate sold in 4Q). The company highlighted that given the
expected commissioning of the Pb smelter in 1QFY12, silver-rich
concentrate sales will continue in the quarter.
• Maintaining its low CoP: Net of royalty, zinc CoP declined modestly to
$784/MT from $792/MT in 3Q as the impact from higher coal costs (70-
75% of coal sourced from imports) was offset by operational
efficiencies. The company is targeting to maintain FY12E zinc metal
CoP at $800/MT despite commodity cost pressure.
• Higher yield helps OI: Other income at Rs3bn was up 46% q/q driven
by the higher RoI on investment in the quarter (8.2% in 4QFY11 vs.
5.8% in 3Q and 4.4% in 4QFY10) and higher cash balance ($3.3bn vs.
$2.9bn in 3Q). 4Q tax rate was lower at 16.9% (vs. JPMe 20%) as it is
residual tax from full FY. It expectes to maintain MAT rate of 18% in
FY12E but higher current tax rate of 17% as the EOU benefit goes away.
HZL saw net reserve addition of 14.6MT (prior to depletion addn was
22MT) taking the total reserves and resources to 313MT and mine life of
over 25yrs.
• STLT reports consolidated 4Q and FY11 results on Apr-25 (Monday).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries Overweight
STRL.BO, STLT IN
Zinc Segment-Higher Pb+Silver conc realization and
lower CoP drive above expectation results
• Hindustan Zinc (HZ), Sterlite Industries’ subsidiary, reported
4QFY11 earnings ahead of estimates: HZL reported 4QFY11
EBITDA at Rs19.69bn (+27% y/y; +31% q/q), well ahead of both JPM
estimates (Rs15.6bn) and Bloomberg consensus (Rs16.1bn). The higher
than expected EBITDA was driven by strong zinc, silver volumes and
high Pb conc realization aided by higher silver content. PAT at Rs17.7bn
(+43% y/y; +37% q/q) was also ahead of estimates (JPMe: Rs13.0bn;
BBGe: Rs13.8bn).
• Volumes inline with production numbers: As reflected in the
production numbers reported earlier this month, zinc sales volume was
strong at 194kt (vs. JPMe 181kt), up 9% q/q and lead volumes improved
to 16kt (+32% q/q as 3Q was impacted by maintenance shutdown).
Silver volume was higher at 44tonnes vs. 29.5tonnes in 3Q and JPMe at
32tonnes. Post the commissioning of the Pb smelter in 1Q and
subsequent ramp up, the refined silver production will increase to an exit
rate of 100tonnes/qtr in FY12E. Adjusted for reported volumes, our
EBITDA and PAT were still 14-20% below the reported numbers driven
by lower than expected metal CoP and higher Pb concentrate sales.
• Silver rich SK mine helps Pb concentrate ASPs: While the increase in
LME prices (Zn +4% q/q and Pb +9% q/q) aided sales, the higher silver
prices over the last few months drove 25% increase in silver ASPs (ASPs
were 5% higher than our estimates). Realization on lead concentrate
sales nearly doubled q/q driven by the higher silver content in the Pb
concentrate sales (silver-rich SK mine contributed ~50% of the Pb
concentrate sold in 4Q). The company highlighted that given the
expected commissioning of the Pb smelter in 1QFY12, silver-rich
concentrate sales will continue in the quarter.
• Maintaining its low CoP: Net of royalty, zinc CoP declined modestly to
$784/MT from $792/MT in 3Q as the impact from higher coal costs (70-
75% of coal sourced from imports) was offset by operational
efficiencies. The company is targeting to maintain FY12E zinc metal
CoP at $800/MT despite commodity cost pressure.
• Higher yield helps OI: Other income at Rs3bn was up 46% q/q driven
by the higher RoI on investment in the quarter (8.2% in 4QFY11 vs.
5.8% in 3Q and 4.4% in 4QFY10) and higher cash balance ($3.3bn vs.
$2.9bn in 3Q). 4Q tax rate was lower at 16.9% (vs. JPMe 20%) as it is
residual tax from full FY. It expectes to maintain MAT rate of 18% in
FY12E but higher current tax rate of 17% as the EOU benefit goes away.
HZL saw net reserve addition of 14.6MT (prior to depletion addn was
22MT) taking the total reserves and resources to 313MT and mine life of
over 25yrs.
• STLT reports consolidated 4Q and FY11 results on Apr-25 (Monday).
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