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Sterlite Industries
Upside potential from coal block and zinc assets
We believe the catalysts for a re-rating are
commissioning the coal block and zinc asset earnings.
If Balco’s captive coal block is commissioned as
projected, there could be significant upside to both
earnings and valuation, in our view.
The international zinc assets provide an option value of
at least US$350m.
We consolidate earnings from its recently-acquired zinc
assets for FY12/13.
Retain price target (Rs212) and OUTPERFORM rating
Strong earnings/valuation upside potential at Balco.
Balco is totally dependent on linkage/imported coal for its
power requirements and so, too, for its alumina
requirements. While the alumina issues are unlikely to be
resolved soon, its stalled smelter could become viable if the
captive coal mines are commissioned in Q2/Q3 FY12. In
such a scenario, our fair value for Balco would increase
from Rs11/sh to Rs27/sh.
International zinc assets provide option value of
US$350m. The Anglo Zinc assets are likely to be significant
earnings drivers, as evident in the 4Q FY11 results. The
NPV of Lisheen, Skorpion and Black Mountain aggregate to
US$1.37bn, the price Sterlite paid for these assets. Thus,
Gamsberg provides an option value of close to US$350-
450m or Rs5-7/sh.
Not factoring in Balco option value in our price target.
Currently, we do not factor in the option value in our price
target. We would like to see progress in development of the
thermal coal mine before factoring it in.
Consolidating Sterlite infra earnings in our forecasts.
We consolidate earnings from its recently-acquired zinc
assets for FY12/13. As a result, our FY12/13E EPS moves
from Rs18.9/21.8 to Rs21.6/24.5. Nevertheless, since we
had already incorporated the value of these assets in our
price target, we maintain our price target at Rs212/sh.
Maintain OUTPERFORM.
Risks – Volatility in commodity prices could pose significant
downside risk to our earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries
Upside potential from coal block and zinc assets
We believe the catalysts for a re-rating are
commissioning the coal block and zinc asset earnings.
If Balco’s captive coal block is commissioned as
projected, there could be significant upside to both
earnings and valuation, in our view.
The international zinc assets provide an option value of
at least US$350m.
We consolidate earnings from its recently-acquired zinc
assets for FY12/13.
Retain price target (Rs212) and OUTPERFORM rating
Strong earnings/valuation upside potential at Balco.
Balco is totally dependent on linkage/imported coal for its
power requirements and so, too, for its alumina
requirements. While the alumina issues are unlikely to be
resolved soon, its stalled smelter could become viable if the
captive coal mines are commissioned in Q2/Q3 FY12. In
such a scenario, our fair value for Balco would increase
from Rs11/sh to Rs27/sh.
International zinc assets provide option value of
US$350m. The Anglo Zinc assets are likely to be significant
earnings drivers, as evident in the 4Q FY11 results. The
NPV of Lisheen, Skorpion and Black Mountain aggregate to
US$1.37bn, the price Sterlite paid for these assets. Thus,
Gamsberg provides an option value of close to US$350-
450m or Rs5-7/sh.
Not factoring in Balco option value in our price target.
Currently, we do not factor in the option value in our price
target. We would like to see progress in development of the
thermal coal mine before factoring it in.
Consolidating Sterlite infra earnings in our forecasts.
We consolidate earnings from its recently-acquired zinc
assets for FY12/13. As a result, our FY12/13E EPS moves
from Rs18.9/21.8 to Rs21.6/24.5. Nevertheless, since we
had already incorporated the value of these assets in our
price target, we maintain our price target at Rs212/sh.
Maintain OUTPERFORM.
Risks – Volatility in commodity prices could pose significant
downside risk to our earnings.
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