Sterlite Industries - Tiding over adversities; Hold
Decent performance amidst adversities. Sterlite Industries’ (Sterlite) revenues for Q1FY14 decreased 22.5% yoy, following shutdown of Tutitcorin copper refinery. Ex copper, revenue grew 5%, on higher volumes in zinc & power and depreciation of rupee, which partly offset lower metal prices. Q1FY14 EBITDA grew 8% yoy, to `21.7bn, on higher volumes in zinc, silver and power, together with greater mined metal production at HZL. Higher interest expenses (due to greater debt) were offset by higher other income. Tax rate increased, leading to PAT decline of 22.3% yoy, to `9.3bn.
Zinc business segment a key growth driver. In Q1FY14, HZL produced 238,000 tons of mined metal (up 27% yoy), in line with the management guidance of 1mt production in FY14e. Refined zinc production grew 8% yoy, to 174,000 tons, due to higher metal-in-concentrate (MIC) production in 1HFY13. Integrated lead production grew 1% yoy, to 31,000 tons, and silver was up 9% yoy, to 77 tons. HZL’s PAT grew 5.7% yoy, driven by higher EBITDA and other income.
Aluminium sound, power surprises positively. Aluminium benefited from higher metal premium, offsetting lower LME. However, higher power costs generated losses of `630m. Net sales realisation above LME was at US$445 and US$320 in BALCO and Vedanta Aluminium, respectively. Power volumes increased 32% yoy, as PLF improved to 54% due to better evacuation and higher capacity. Power realisations improved marginally and EBITDA per unit declined due to higher costs (+6% yoy), but higher volumes pushed EBITDA to grow at 22.2% yoy.
Our take. Sterlite is valued in proportion to its share in Sesa Sterlite (SSL), as per the proposed Vedanta group restructuring.We have valued SSL on SOTP with multiples in line with peers and holdco discount of 20% for HZL and Cairn. Sterlite is valued at `88/share to reflect lower multiples in the present macro backdrop. We maintain Hold, since re-rating is constrained by lack of access to cheaper inputs. Risks. Adverse regulations.
| Thanks & Regards Anand Rathi Institutional Research |
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