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Sterlite's core zinc business looks set for strong earnings growth, which should re-rate the
share. In our SOTP, the worrisome aluminium and power businesses are available for free.
The risk-reward trade-off now looks very favourable. We roll-over our target to FY13 and
raise our TP to Rs225. Buy maintained.
EBITDA to grow at a 30% CAGR to FY14
We forecast strong earnings growth for all business segments, ie, zinc, lead, silver,
aluminium and power, over the next two years. We expect growth in its core zinc, lead and
silver businesses to be visible from 1QFY12, and for aluminium and power from end-FY12
and in FY13. We expect earnings to be driven by the successful ramp up of: 1) silver output
from 150t to 500t by FY13, 2) the full commissioning of 2400MW of power in Sterlite Energy
by FY13, 3) 0.3mt aluminium capacity expansion and 1200MW power expansion at BALCO
by FY13/14, and 4) the 1.25mt aluminium expansion at Vedanta Aluminium (VAL).
At CMP, the aluminium and power businesses come free!
Based on our SOTP valuation, the core zinc and copper businesses are valued at
Rs165/share, implying that the high growth (and uncertain) aluminium business which
comprises of BALCO and VAL and the power business through Sterlite Energy (SEL) are
available for free. We note that Sterlite has invested US$1.91bn in VAL and will have spent
US$1.9bn in SEL by end-FY12. Assuming all planned projects (ex- zinc) come on-stream as
planned by FY14, implies additional EBITDA of Rs70.7bn in FY14 (based on what we feel are
conservative estimates). However, lack of visibility on approvals means we model just earnings
growth of Rs37.7bn from the projects in BALCO, VAL and SEL.
Rolling-forward to FY13 and raising TP to Rs225: Sterlite now our top pick
We largely retain our forecasts and roll-forward our earnings to FY13, raising our target price to
Rs225 from Rs210. We value Sterlite’s core zinc and copper businesses at Rs165/share making
the risk/reward extremely favourable over the next two to three years when earnings should start
to kick in from the massive investments in aluminium and power businesses. We have a blue sky
fair value to FY14 of Rs291, which assumes all projects are up and running and fully backward
integrated. We announce Sterlite as our top pick ahead of Hindalco given our expectations of
superior earnings growth. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite's core zinc business looks set for strong earnings growth, which should re-rate the
share. In our SOTP, the worrisome aluminium and power businesses are available for free.
The risk-reward trade-off now looks very favourable. We roll-over our target to FY13 and
raise our TP to Rs225. Buy maintained.
EBITDA to grow at a 30% CAGR to FY14
We forecast strong earnings growth for all business segments, ie, zinc, lead, silver,
aluminium and power, over the next two years. We expect growth in its core zinc, lead and
silver businesses to be visible from 1QFY12, and for aluminium and power from end-FY12
and in FY13. We expect earnings to be driven by the successful ramp up of: 1) silver output
from 150t to 500t by FY13, 2) the full commissioning of 2400MW of power in Sterlite Energy
by FY13, 3) 0.3mt aluminium capacity expansion and 1200MW power expansion at BALCO
by FY13/14, and 4) the 1.25mt aluminium expansion at Vedanta Aluminium (VAL).
At CMP, the aluminium and power businesses come free!
Based on our SOTP valuation, the core zinc and copper businesses are valued at
Rs165/share, implying that the high growth (and uncertain) aluminium business which
comprises of BALCO and VAL and the power business through Sterlite Energy (SEL) are
available for free. We note that Sterlite has invested US$1.91bn in VAL and will have spent
US$1.9bn in SEL by end-FY12. Assuming all planned projects (ex- zinc) come on-stream as
planned by FY14, implies additional EBITDA of Rs70.7bn in FY14 (based on what we feel are
conservative estimates). However, lack of visibility on approvals means we model just earnings
growth of Rs37.7bn from the projects in BALCO, VAL and SEL.
Rolling-forward to FY13 and raising TP to Rs225: Sterlite now our top pick
We largely retain our forecasts and roll-forward our earnings to FY13, raising our target price to
Rs225 from Rs210. We value Sterlite’s core zinc and copper businesses at Rs165/share making
the risk/reward extremely favourable over the next two to three years when earnings should start
to kick in from the massive investments in aluminium and power businesses. We have a blue sky
fair value to FY14 of Rs291, which assumes all projects are up and running and fully backward
integrated. We announce Sterlite as our top pick ahead of Hindalco given our expectations of
superior earnings growth. Buy.
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