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EARNINGS REVIEW
Sterlite Industries (India) (STRL.BO)
Buy Equity Research
Below expectations: Higher coal costs in aluminium drag EBITDA
What surprised us
Sterlite Industries reported 2QFY12 net income of Rs9.98 bn (-1% yoy, -39% qoq)
39% below our estimate and 35% below Bloomberg, which includes a nonrecurring mark-to-market Fx translation loss of Rs4.6 bn. At the operating level,
EBITDA of Rs 24.8 bn (+62% yoy, -10% qoq) was 9% below our estimate and 7%
below consensus. Key highlights: 1) The India Zinc business saw revenue of
Rs25.6 bn (+19% yoy) and EBITDA of Rs14. 2 bn, with EBITDA margins below
expectation at 55.6% on rising costs. Zinc COP was US$1,036/ton (with royalty).
2) The International Zinc business saw 2QFY12 EBITDA of Rs5.3 bn on higher
LME zinc prices and stable utilization with COP at US$1,242/ton. 3) The Copper
business had lower than expected EBITDA of Rs3.7 bn as better than expected
cost (due to byproduct credits and higher metal recovery) was more than offset
by mark-to-market Fx losses on buyer’s credit. 4) The Aluminum business
(BALCO) saw costs spike due to higher coal and alumina prices, with reported
COP at US$2,133/ton and EBITDA of Rs550 mn. 5) Power business EBITDA of
Rs1.3 bn was up due to sales from two units of 600 MW each commissioned this
year. Cost of generation at Sterlite Energy was Rs2.9/kwh on higher coal costs,
with average tariffs of Rs3.5/kwh. Sterlite’s associate company VAL (Vedanta
Aluminium) reported a loss of Rs8.2 bn, and COP stood at US$2,554/ton.
What to do with the stock
We lower our FY12-FY14E EPS by 8-16% to reflect higher costs, which results in
our 12-month SOTP-based price target moving to Rs160 from Rs164. We
reiterate our Buy on Sterlite on attractive valuation, with STRL trading at FY12E
EV/EBITDA of 3.4X, a 32% discount to peers at 5X and 37% discount to its midcycle multiple of 5.4X. Risks include commodity price weakness and delays in
execution of growth projects
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
Below expectations: Higher coal costs in aluminium drag EBITDA
What surprised us
Sterlite Industries reported 2QFY12 net income of Rs9.98 bn (-1% yoy, -39% qoq)
39% below our estimate and 35% below Bloomberg, which includes a nonrecurring mark-to-market Fx translation loss of Rs4.6 bn. At the operating level,
EBITDA of Rs 24.8 bn (+62% yoy, -10% qoq) was 9% below our estimate and 7%
below consensus. Key highlights: 1) The India Zinc business saw revenue of
Rs25.6 bn (+19% yoy) and EBITDA of Rs14. 2 bn, with EBITDA margins below
expectation at 55.6% on rising costs. Zinc COP was US$1,036/ton (with royalty).
2) The International Zinc business saw 2QFY12 EBITDA of Rs5.3 bn on higher
LME zinc prices and stable utilization with COP at US$1,242/ton. 3) The Copper
business had lower than expected EBITDA of Rs3.7 bn as better than expected
cost (due to byproduct credits and higher metal recovery) was more than offset
by mark-to-market Fx losses on buyer’s credit. 4) The Aluminum business
(BALCO) saw costs spike due to higher coal and alumina prices, with reported
COP at US$2,133/ton and EBITDA of Rs550 mn. 5) Power business EBITDA of
Rs1.3 bn was up due to sales from two units of 600 MW each commissioned this
year. Cost of generation at Sterlite Energy was Rs2.9/kwh on higher coal costs,
with average tariffs of Rs3.5/kwh. Sterlite’s associate company VAL (Vedanta
Aluminium) reported a loss of Rs8.2 bn, and COP stood at US$2,554/ton.
What to do with the stock
We lower our FY12-FY14E EPS by 8-16% to reflect higher costs, which results in
our 12-month SOTP-based price target moving to Rs160 from Rs164. We
reiterate our Buy on Sterlite on attractive valuation, with STRL trading at FY12E
EV/EBITDA of 3.4X, a 32% discount to peers at 5X and 37% discount to its midcycle multiple of 5.4X. Risks include commodity price weakness and delays in
execution of growth projects
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