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EARNINGS REVIEW
Sterlite Industries (India) (STRL.BO)
Buy Equity Research
Above expectations: Strong operating performance; Buy
What surprised us
Sterlite (STRL) reported 1QFY12 net income of Rs16.4bn, +63% yoy, 11% above
GSe and 5% above Bloomberg consensus estimates. The company reported a
healthy operating performance with EBITDA of Rs27.5bn (+84% yoy), 7% above
our estimate, and 4% above consensus. Key highlights: 1) The strong
performance was driven by India Zinc business with revenue of Rs27.8bn (+44%
yoy) and EBITDA of Rs15.5bn (+55% yoy); EBITDA margin came in at 56%
(+400bp yoy) on improved realizations and higher volumes for lead/zinc and
increased contribution from silver offset higher coal and stripping costs; 2)
International Zinc business reported 1QFY12 EBITDA of Rs5.2bn (+21% qoq) led
by higher utilization rates; 3) Copper business was in line with our estimates,
with EBITDA at Rs3.3bn (+27% yoy), as higher acid realizations and improved
TC/RC rates offset lower volumes due to maintenance shutdowns – TC/RC rate
stood at 13.9¢/lb (11.3¢/lb in 4QFY11); 4) Aluminum business (BALCO) was also
in line, with reported EBITDA of Rs1.9bn (+126% yoy), led by higher aluminum
prices though BALCO volumes were down 3% yoy; 5) Power business’ EBITDA
of Rs1.6bn was muted qoq, primarily due to lower-than-average tariff realization
(Rs3.6/kwh) and higher CoP (+53% yoy) led by increased coal costs. Growth
projects remain on track as per management. Consolidated net cash as at
1QFY12 was about US$2.2bn (17% of market cap).
What to do with the stock
We revise down our FY12E-FY14E EPS by 1%-9% to reflect lower volumes due
to the power outage at Jharsuguda smelter of its associate, Vedanta Aluminum
(30% stake). Reiterate our Buy rating on Sterlite, with revised 12-month SOTPbased
price target of Rs205 (from Rs206). STRL is trading at FY12E EV/EBITDA of
3.2X, 48% disc to peers at 6.1X and 41% disc to its mid-cycle of 5.4X.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Sterlite Industries (India) (STRL.BO)
Buy Equity Research
Above expectations: Strong operating performance; Buy
What surprised us
Sterlite (STRL) reported 1QFY12 net income of Rs16.4bn, +63% yoy, 11% above
GSe and 5% above Bloomberg consensus estimates. The company reported a
healthy operating performance with EBITDA of Rs27.5bn (+84% yoy), 7% above
our estimate, and 4% above consensus. Key highlights: 1) The strong
performance was driven by India Zinc business with revenue of Rs27.8bn (+44%
yoy) and EBITDA of Rs15.5bn (+55% yoy); EBITDA margin came in at 56%
(+400bp yoy) on improved realizations and higher volumes for lead/zinc and
increased contribution from silver offset higher coal and stripping costs; 2)
International Zinc business reported 1QFY12 EBITDA of Rs5.2bn (+21% qoq) led
by higher utilization rates; 3) Copper business was in line with our estimates,
with EBITDA at Rs3.3bn (+27% yoy), as higher acid realizations and improved
TC/RC rates offset lower volumes due to maintenance shutdowns – TC/RC rate
stood at 13.9¢/lb (11.3¢/lb in 4QFY11); 4) Aluminum business (BALCO) was also
in line, with reported EBITDA of Rs1.9bn (+126% yoy), led by higher aluminum
prices though BALCO volumes were down 3% yoy; 5) Power business’ EBITDA
of Rs1.6bn was muted qoq, primarily due to lower-than-average tariff realization
(Rs3.6/kwh) and higher CoP (+53% yoy) led by increased coal costs. Growth
projects remain on track as per management. Consolidated net cash as at
1QFY12 was about US$2.2bn (17% of market cap).
What to do with the stock
We revise down our FY12E-FY14E EPS by 1%-9% to reflect lower volumes due
to the power outage at Jharsuguda smelter of its associate, Vedanta Aluminum
(30% stake). Reiterate our Buy rating on Sterlite, with revised 12-month SOTPbased
price target of Rs205 (from Rs206). STRL is trading at FY12E EV/EBITDA of
3.2X, 48% disc to peers at 6.1X and 41% disc to its mid-cycle of 5.4X.
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