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Stupendous performance…
Sterlite’s Q4FY11 results were ahead of our estimates. Topline registered
an impressive growth (up ~20% QoQ and ~38% YoY) at | 10000.3 crore
against expected | 8102.7 crore led by volume expansion and robust
realisations from the zinc, aluminium, silver and copper segment. EBITDA
margins remained flat at ~30.6%, a marginal increase of 35 bps YoY.
However, sequentially margins improve drastically by ~684 bps. Overall
cost of production remained flat. The cost of production of the zinc and
aluminium segment increased ~5-6%. This was offset by lower cost of
production of copper (on the back of better by-product realisation). The
consolidated PAT for Q4FY11 came at | 1925 crore against our estimate
of | 1650 crore registering a rise of ~39% YoY and ~75% QoQ. This was
led by a reduction in the consolidated interest outgo (down ~14% YoY
but up ~47% QoQ). The overall strong performance is attributable to
improved realisations from the silver, zinc and lead concentrate sales and
higher other income due to higher return on investments.
�� Project update
The commissioning of the 100 ktpa lead smelter at HZL is expected
to be complete in Q1FY12. HZL also plans to commission the
balance 102 MW of the 150 MW wind power capacity by the end of
FY12. The construction of the 1,200 MW CPP at Balco is progressing
well and the first unit is expected to be synchronised in Q1FY12. At
Sterlite Energy, the remaining two units of the Jharsuguda 2400 MW
IPP are expected to be synchronised in Q2FY12 and Q3FY12,
respectively.
Valuation
At the CMP of | 183, the stock is trading at FY12E PE of 12.2x and FY12E
EV/EBITDA of 5.8x on a consolidated basis. We have valued the stock on
an SOTP basis and arrived at a target price of | 210. We have assigned a
BUY rating to the stock.
Other key highlights
Copper business
• Production remained level at 80,000 tonnes on a YoY basis.
However, due to improved realisations, the topline of the
company registered a sharp growth
• During the quarter, the company realised treatment
charges/refining charges (TC/RC) at US 11.27 cents/lb whereas the
TC/RC cost for the quarter stood at USc 0.99/lb
• Sulphuric acid (by-product) prices also improved from | 3365/t in
Q3FY11 to | 3846 (up ~14% QoQ and 84%YoY), thereby leading
to a decline in the overall cost of the company
Aluminium business
• Production at Balco stood at 62,000 tonne for Q4FY11, which was
in line with our estimates
• The cost of production at Balco was US$1781 per tonne
compared to US$1667 per tonne in Q4FY10 (up ~6% YoY)
• At Vedanta Aluminium Ltd (VAL), alumina production stood at 184
MT while aluminium production was at 108 MT
• Cost of production at VAL remained at elevated levels, where cost
of alumina production was US$319/t while for aluminium it was
US$2089/t
Energy business
• The total power sales for the energy segment stood at 687 million
units of which 210 million was sold from SEL and 432 million units
in Balco
• The average realisation for the quarter stood at | 3/unit, lower by
15% YoY. The decline in realisation was mainly on account of
lower demand by utility companies
• The cost of production of power generation at SEL remained at |
2.34/unit, which is relatively higher than our expectation of |
1.8/unit. The management has guided that production cost is
likely to remain at the current level due to use of imported coal
• The cost of production at Balco remains at | 1.87/unit and is
expected to remain at the current level, going forward. The first
unit of 4x300 CPP in Balco is likely to be commissioned during the
end of Q1FY12
Zinc and lead business
• The key contributor to the strong performance of the company is
mainly the robust performance at the zinc-lead mines, which
recorded their highest ever production of mined metal at 2,31,039
tonnes
• The increase in production was primarily on account of higher
contribution from Rampura Agucha and Sindesar Khurd mines
• Refined zinc metal production, during Q4, was a record 1, 94,000
tonnes (up 29% YoY). At the same time, refined lead metal
production was 13% lower at 18,000 tonnes in Q4 whereas silver
production remained flat YoY and grew significantly QoQ
• On a sequential basis, the cost of production of zinc at Hindustan
Zinc remained flat at US$784/tonne without royalty. However, on
a YoY comparison, the cost has increased by 5% on account of a
significant increase in coal prices, higher employee cost and
higher stripping costs at Rampura Agucha
• During Q4FY11, international zinc assets started their contribution
with sales coming in at | 842 crore, EBITDA at | 439 crore and net
profit at | 284 crore. The cost of production for the zinc
international business was at US$1200/tonne
Outlook and earnings revision
We believe the company will perform well, going forward, mainly driven
by 1) the strong performance from HZL, 2) improving TC/RC margins in
the copper segment and 3) firm LME prices. We have introduced our
FY13E numbers and expect the company’s sales to grow at a CAGR of
~24% and EBITDA and PAT to grow at a CAGR of ~36% and 31%,
respectively, from FY11-FY13E.
Valuations
At the CMP of | 183, the stock is trading at FY12E PE of 12.2x and FY12E
EV/EBITDA of 5.8x on a consolidated basis. We have valued the stock on
an SOTP basis and arrived at a target price of | 210. We have assigned a
BUY rating to the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Stupendous performance…
Sterlite’s Q4FY11 results were ahead of our estimates. Topline registered
an impressive growth (up ~20% QoQ and ~38% YoY) at | 10000.3 crore
against expected | 8102.7 crore led by volume expansion and robust
realisations from the zinc, aluminium, silver and copper segment. EBITDA
margins remained flat at ~30.6%, a marginal increase of 35 bps YoY.
However, sequentially margins improve drastically by ~684 bps. Overall
cost of production remained flat. The cost of production of the zinc and
aluminium segment increased ~5-6%. This was offset by lower cost of
production of copper (on the back of better by-product realisation). The
consolidated PAT for Q4FY11 came at | 1925 crore against our estimate
of | 1650 crore registering a rise of ~39% YoY and ~75% QoQ. This was
led by a reduction in the consolidated interest outgo (down ~14% YoY
but up ~47% QoQ). The overall strong performance is attributable to
improved realisations from the silver, zinc and lead concentrate sales and
higher other income due to higher return on investments.
�� Project update
The commissioning of the 100 ktpa lead smelter at HZL is expected
to be complete in Q1FY12. HZL also plans to commission the
balance 102 MW of the 150 MW wind power capacity by the end of
FY12. The construction of the 1,200 MW CPP at Balco is progressing
well and the first unit is expected to be synchronised in Q1FY12. At
Sterlite Energy, the remaining two units of the Jharsuguda 2400 MW
IPP are expected to be synchronised in Q2FY12 and Q3FY12,
respectively.
Valuation
At the CMP of | 183, the stock is trading at FY12E PE of 12.2x and FY12E
EV/EBITDA of 5.8x on a consolidated basis. We have valued the stock on
an SOTP basis and arrived at a target price of | 210. We have assigned a
BUY rating to the stock.
Other key highlights
Copper business
• Production remained level at 80,000 tonnes on a YoY basis.
However, due to improved realisations, the topline of the
company registered a sharp growth
• During the quarter, the company realised treatment
charges/refining charges (TC/RC) at US 11.27 cents/lb whereas the
TC/RC cost for the quarter stood at USc 0.99/lb
• Sulphuric acid (by-product) prices also improved from | 3365/t in
Q3FY11 to | 3846 (up ~14% QoQ and 84%YoY), thereby leading
to a decline in the overall cost of the company
Aluminium business
• Production at Balco stood at 62,000 tonne for Q4FY11, which was
in line with our estimates
• The cost of production at Balco was US$1781 per tonne
compared to US$1667 per tonne in Q4FY10 (up ~6% YoY)
• At Vedanta Aluminium Ltd (VAL), alumina production stood at 184
MT while aluminium production was at 108 MT
• Cost of production at VAL remained at elevated levels, where cost
of alumina production was US$319/t while for aluminium it was
US$2089/t
Energy business
• The total power sales for the energy segment stood at 687 million
units of which 210 million was sold from SEL and 432 million units
in Balco
• The average realisation for the quarter stood at | 3/unit, lower by
15% YoY. The decline in realisation was mainly on account of
lower demand by utility companies
• The cost of production of power generation at SEL remained at |
2.34/unit, which is relatively higher than our expectation of |
1.8/unit. The management has guided that production cost is
likely to remain at the current level due to use of imported coal
• The cost of production at Balco remains at | 1.87/unit and is
expected to remain at the current level, going forward. The first
unit of 4x300 CPP in Balco is likely to be commissioned during the
end of Q1FY12
Zinc and lead business
• The key contributor to the strong performance of the company is
mainly the robust performance at the zinc-lead mines, which
recorded their highest ever production of mined metal at 2,31,039
tonnes
• The increase in production was primarily on account of higher
contribution from Rampura Agucha and Sindesar Khurd mines
• Refined zinc metal production, during Q4, was a record 1, 94,000
tonnes (up 29% YoY). At the same time, refined lead metal
production was 13% lower at 18,000 tonnes in Q4 whereas silver
production remained flat YoY and grew significantly QoQ
• On a sequential basis, the cost of production of zinc at Hindustan
Zinc remained flat at US$784/tonne without royalty. However, on
a YoY comparison, the cost has increased by 5% on account of a
significant increase in coal prices, higher employee cost and
higher stripping costs at Rampura Agucha
• During Q4FY11, international zinc assets started their contribution
with sales coming in at | 842 crore, EBITDA at | 439 crore and net
profit at | 284 crore. The cost of production for the zinc
international business was at US$1200/tonne
Outlook and earnings revision
We believe the company will perform well, going forward, mainly driven
by 1) the strong performance from HZL, 2) improving TC/RC margins in
the copper segment and 3) firm LME prices. We have introduced our
FY13E numbers and expect the company’s sales to grow at a CAGR of
~24% and EBITDA and PAT to grow at a CAGR of ~36% and 31%,
respectively, from FY11-FY13E.
Valuations
At the CMP of | 183, the stock is trading at FY12E PE of 12.2x and FY12E
EV/EBITDA of 5.8x on a consolidated basis. We have valued the stock on
an SOTP basis and arrived at a target price of | 210. We have assigned a
BUY rating to the stock.
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