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Sterlite Industries
Overweight
STRL.BO, STLT IN
Strong operating quarter, volume catalyst yet to fully
play out; remain Overweight
• Strong beat at operating level across segments: STLT reported
consolidated EBITDA of Rs30.6bn vs. JPMe Rs22bn and BBRG consensus
of Rs23.6bn driven by: a) zinc (higher silver containing concentrate sales),
which accounted for 50% of the beat; b) copper (better acid realizations),
20% of the beat; c) international zinc assets (higher volumes), 17% of the
beat; and lastly d) aluminum, which had surprisingly flattish CoP (even as
carbon and coal costs have moved up). PAT at Rs19.2bn (+75% q/q) benefited
from a sharp increase in other income at the consolidated level (Rs7.2bn +52%
q/q) even as other income at the standalone level declined 27% q/q, while the
zinc segment other income increase explains only Rs1bn of the Rs2.5bn q/q
increase. While some may focus on the ‘opaque’ other income increases and
whether the same is sustainable (we believe it is not given that it was partly
driven by FCCB re-valuation), we would highlight that the operational drivers
behind the quarter’s results are still very much in play (higher Tc/Rc, high
spot silver, increasing volumes across zinc, silver and power, and international
zinc operations). This provides solid tailwinds over FY12E and causes us to
increase our PT to Rs235 (we upgrade our EPS by 9-10% for FY12E-13E).
• More disclosure on VAL positive, unlikely to turn PAT positive any time
soon: STLT gave a funding breakdown and also disclosed key P&L items (q/q
comparisons not available). Alumina CoP stood at $319/MT in Q4 and
$326/MT for FY11, while aluminum CoP stood at $2089/MT and $2008/MT
for Q4 and FY11, respectively, highlighting that while alumina CoP declined
throughout the year, aluminum CoP picked up driven by higher carbon and coal.
EBITDA stood at Rs7.15bn for FY11 but there was a net loss of Rs9.6bn, given
interest and depreciation. We expect VAL to remain loss making at the PAT
level given high alumina CoP.
• MTM vs. JPMe: Of the key commodities, JPM forecasts are ahead of current
prices only for zinc. At current LME, EPS would be 2% higher. Our forecasts
for silver, which accounts for 11%/15% of FY12/13 estimates, are 36%/57%
lower than current prices for FY12E/13E. While any pullback in spot silver
prices would be a negative for sentiment, given the volume drivers, we would be
buyers of the stock. Key risks from here are a collapse in zinc prices and new
regulatory uncertainty across business segments
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries
Overweight
STRL.BO, STLT IN
Strong operating quarter, volume catalyst yet to fully
play out; remain Overweight
• Strong beat at operating level across segments: STLT reported
consolidated EBITDA of Rs30.6bn vs. JPMe Rs22bn and BBRG consensus
of Rs23.6bn driven by: a) zinc (higher silver containing concentrate sales),
which accounted for 50% of the beat; b) copper (better acid realizations),
20% of the beat; c) international zinc assets (higher volumes), 17% of the
beat; and lastly d) aluminum, which had surprisingly flattish CoP (even as
carbon and coal costs have moved up). PAT at Rs19.2bn (+75% q/q) benefited
from a sharp increase in other income at the consolidated level (Rs7.2bn +52%
q/q) even as other income at the standalone level declined 27% q/q, while the
zinc segment other income increase explains only Rs1bn of the Rs2.5bn q/q
increase. While some may focus on the ‘opaque’ other income increases and
whether the same is sustainable (we believe it is not given that it was partly
driven by FCCB re-valuation), we would highlight that the operational drivers
behind the quarter’s results are still very much in play (higher Tc/Rc, high
spot silver, increasing volumes across zinc, silver and power, and international
zinc operations). This provides solid tailwinds over FY12E and causes us to
increase our PT to Rs235 (we upgrade our EPS by 9-10% for FY12E-13E).
• More disclosure on VAL positive, unlikely to turn PAT positive any time
soon: STLT gave a funding breakdown and also disclosed key P&L items (q/q
comparisons not available). Alumina CoP stood at $319/MT in Q4 and
$326/MT for FY11, while aluminum CoP stood at $2089/MT and $2008/MT
for Q4 and FY11, respectively, highlighting that while alumina CoP declined
throughout the year, aluminum CoP picked up driven by higher carbon and coal.
EBITDA stood at Rs7.15bn for FY11 but there was a net loss of Rs9.6bn, given
interest and depreciation. We expect VAL to remain loss making at the PAT
level given high alumina CoP.
• MTM vs. JPMe: Of the key commodities, JPM forecasts are ahead of current
prices only for zinc. At current LME, EPS would be 2% higher. Our forecasts
for silver, which accounts for 11%/15% of FY12/13 estimates, are 36%/57%
lower than current prices for FY12E/13E. While any pullback in spot silver
prices would be a negative for sentiment, given the volume drivers, we would be
buyers of the stock. Key risks from here are a collapse in zinc prices and new
regulatory uncertainty across business segments
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