Sesa Sterlite - On Stable Footing; Result Update Q2FY15 :: Edelweiss report

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Sesa Sterlite’s (SSLT) Q2FY15 consolidated EBITDA of ~INR63.3bn (down ~12% YoY, up ~12% QoQ) was broadly in line. Strong performance was logged by Hindustan Zinc (HZL; high volumes, premiums) and copper business (high volumes, margins), while oil and gas, power and aluminium businesses disappointed, mainly due to elevated costs. The company reported forex gain of INR2.6bn. Tax rate also came in at ~15% versus estimated 20%, resulting in marginal beat in reported PAT of INR16.2bn, (down ~32% YoY). We prune our FY15E/FY16E consolidated EBITDA by ~5%/7%, primarily owing to cut in crude price assumption and lower aluminium and power volumes. However, we expect consolidated EBITDA to grow ~14% in FY16 over FY14.

EBITDA broadly in line; PAT beat on forex gain and lower tax rate

SSLT’s reported consolidated EBITDA of INR63.3bn was broadly in line with estimates. Though oil and gas, power and aluminium segments disappointed, HZL and copper business surprised positively. Power plants operated at low PLF due to operational and evacuation constraints, while aluminium and power businesses suffered due to challenges in coal availability. Copper business benefitted from strong Tc/Rc charges and high capacity utilisation. With forex gain of INR2.6bn and lower tax rate, reported PAT of INR16.2bn was a marginal beat.

Strong zinc production in H2FY15; coal cost to reduce

The company expects strong pick-up in mined metal production in HZL in H2FY15. Coal cost should start falling in H2FY15 as local coal availability improves. SSLT is close to securing environmental clearance for the 5mtpa alumina refinery expansion and may trigger the 250ktpa Gamsberg zinc project along with the 150ktpa Skorpion refinery.