Sterlite Industries' (STLT) 4QFY13 consolidated EBITDA increased 42% QoQ to
INR33b (v/s est of INR30.3b) due to strong performance across segments.
Adjusted PAT increased 57% QoQ to INR19.6b. Superior performance (v/s
est) was largely driven by improved operating parameters of recently
commissioned 80MW CPP at Tuticorin and improved quality and lower cost
of coal for Bharat Aluminium (Balco), Vedanta Aluminium (VAL) and Sterlite
Energy (SEL) for generation of power and aluminum smelting.
Uncertainty regarding restart of copper smelter persists but we are optimistic
that the smelter will eventually come back to operations.
SEL's fourth unit of 600MW was commissioned on March 31, 2013. Lack of PPA
for 1,800MW, transmission bottlenecks and fluctuating quality of coal and
prices will keep SEL's profitability volatile.
Both VAL and Balco's aluminum smelters are operating at full capacity and
are now fully non-integrated for alumina. Balco is in advanced stages of
signing the mining lease for coal block, which could improve cash flows and
cost structure of its 245ktpa smelter and 325ktpa expansion.
Although production at Zinc International will decline ~5% in FY14, Hindustan
Zinc (HZL) will more than compensate with higher mine production.
STLT has a debt of INR190b (standalone INR100b + Balco INR43b + TSPL INR38b).
Sesa-Sterlite (SS) merged entity will have a consolidated debt of INR730b.
Standalone SS will have a debt of INR650b, while EBITDA will be only INR35-
45b. We are concerned about the servicing of debt as the surplus funds with
cash cows (HZL and Cairn India) are not fungible. Management continues to
evade answering queries regarding the same. We believe SS will have to
undergo another round of group restructuring to avail cash from its cash
cows for servicing debt. The high leveraged position of standalone-merged
entity continues to concern us and drag SS' valuation.
SS trades at attractive FY15E PE of 5.1x and EV/EBITDA of 5x. Maintain Buy.
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