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UBS Investment Research
Sterlite Industries
A luminium/forex loss drag Q2
Event: Results lower driven by forex losses; higher aluminium CoP
EBITDA of Rs24.2bn (-11%QoQ, +64%YoY) was lower than UBS-e/consensus of
Rs26.3bn/Rs26.6bn driven by a)notional forex loss of Rs0.6bn b)lower Aluminium
division (Balco) EBIT at Rs.08bn (lower by Rs1.5/1.2bn QoQ/YoY due to higher
alumina/carbon costs). Pre-ex PAT at Rs13.3bn (-11%QoQ, +30%YoY) was lower
than UBS-e/consensus of Rs14.4bn/Rs15.4bn due to 1) Lower EBITDA 2) Forex
loss of cRs4bn (below EBITDA) 3) Higher CoP at VAL (Sterlite owns 29.4% in
VAL) leading to loss of Rs8.2bn – Sterlite’s share is -Rs2.4bn (vs -Rs1.1bn in Q1)
Impact: BALCO down, VAL a drag; Zinc drives earnings; Copper stable
1)Aluminium division (Balco) contributed 0% to overall EBIT surprising -vely.
Balco’s CoP increased to US$2,133/t (from US$1,981),2)Zinc division contributed
c81% of overall EBIT,3)Stable Copper div EBIT was Rs3.1bn (6% QoQ,
96%YoY, 15% to overall EBIT) with CoP of US$-3.7/lb (US$-2.9/lb in Q1), 4)
Loss at VAL is up mainly due to higher CoP (US$2,554/t vs US$2,300 in Q1).
Action: Reiterate Buy on Sterlite, change in dividend policy positive
Sterlite announced interim dividend of Rs1/share & moved to % of profit sharing
payout method (like in HZL). We believe Sterlite is attractive at current levels
given triggers such as: 1) strong earnings momentum from existing operations 2)
consolidation of earnings from Anglo Zinc 3) attractive valuations.
Valuation: Buy rating and price target of Rs215
We value Sterlite’s key businesses (copper, Zinc/HZL, Balco) on March 2013E
EV/EBITDA of 5.5x (average of last two cycles) and investments at book value.
Sterlite Industries
Sterlite Industries, the flagship of the Agarwal group, owns a 400ktpa copper
smelter in Tuticorin, India. It is the holding company for Hindustan Zinc (HZL,
with a 65% stake), Balco (51%), Copper Mines of Tasmania (CMT, 100%), and
Sterlite Power (100%) within the Vedanta group. HZL had 411ktps zinc
smelting capacity at end-FY07, which the company expects to raise to 669ktpa
by June 2008. Balco has increased its aluminium smelting capacity from
135ktpa to 345ktpa. Sterlite is setting up a 2,400 MW merchant power plant that
should start operations by December 2009. Sterlite holds 30% of Vedanta
Alumina.
Statement of Risk
We believe a sharp fall in zinc prices, which are linked to global economic
growth, would be the key risk factor for Sterlite. The company may not, for
whatever reason, be able to acquire the government stake in HZL and/or
BALCO, which could affect the consolidation of operations into the future.
Disruptions in power supply could lead to delays in projects and/or increases in
capex requirements.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Sterlite Industries
A luminium/forex loss drag Q2
Event: Results lower driven by forex losses; higher aluminium CoP
EBITDA of Rs24.2bn (-11%QoQ, +64%YoY) was lower than UBS-e/consensus of
Rs26.3bn/Rs26.6bn driven by a)notional forex loss of Rs0.6bn b)lower Aluminium
division (Balco) EBIT at Rs.08bn (lower by Rs1.5/1.2bn QoQ/YoY due to higher
alumina/carbon costs). Pre-ex PAT at Rs13.3bn (-11%QoQ, +30%YoY) was lower
than UBS-e/consensus of Rs14.4bn/Rs15.4bn due to 1) Lower EBITDA 2) Forex
loss of cRs4bn (below EBITDA) 3) Higher CoP at VAL (Sterlite owns 29.4% in
VAL) leading to loss of Rs8.2bn – Sterlite’s share is -Rs2.4bn (vs -Rs1.1bn in Q1)
Impact: BALCO down, VAL a drag; Zinc drives earnings; Copper stable
1)Aluminium division (Balco) contributed 0% to overall EBIT surprising -vely.
Balco’s CoP increased to US$2,133/t (from US$1,981),2)Zinc division contributed
c81% of overall EBIT,3)Stable Copper div EBIT was Rs3.1bn (6% QoQ,
96%YoY, 15% to overall EBIT) with CoP of US$-3.7/lb (US$-2.9/lb in Q1), 4)
Loss at VAL is up mainly due to higher CoP (US$2,554/t vs US$2,300 in Q1).
Action: Reiterate Buy on Sterlite, change in dividend policy positive
Sterlite announced interim dividend of Rs1/share & moved to % of profit sharing
payout method (like in HZL). We believe Sterlite is attractive at current levels
given triggers such as: 1) strong earnings momentum from existing operations 2)
consolidation of earnings from Anglo Zinc 3) attractive valuations.
Valuation: Buy rating and price target of Rs215
We value Sterlite’s key businesses (copper, Zinc/HZL, Balco) on March 2013E
EV/EBITDA of 5.5x (average of last two cycles) and investments at book value.
Sterlite Industries
Sterlite Industries, the flagship of the Agarwal group, owns a 400ktpa copper
smelter in Tuticorin, India. It is the holding company for Hindustan Zinc (HZL,
with a 65% stake), Balco (51%), Copper Mines of Tasmania (CMT, 100%), and
Sterlite Power (100%) within the Vedanta group. HZL had 411ktps zinc
smelting capacity at end-FY07, which the company expects to raise to 669ktpa
by June 2008. Balco has increased its aluminium smelting capacity from
135ktpa to 345ktpa. Sterlite is setting up a 2,400 MW merchant power plant that
should start operations by December 2009. Sterlite holds 30% of Vedanta
Alumina.
Statement of Risk
We believe a sharp fall in zinc prices, which are linked to global economic
growth, would be the key risk factor for Sterlite. The company may not, for
whatever reason, be able to acquire the government stake in HZL and/or
BALCO, which could affect the consolidation of operations into the future.
Disruptions in power supply could lead to delays in projects and/or increases in
capex requirements.
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