Topline beat; margin miss… • Sesa Sterlite :: ICICI Securities PDF link

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Topline beat; margin miss…
• Sesa Sterlite reported a good set of Q2FY15 numbers wherein
topline and PAT were higher than our estimates whereas EBITDA
was marginally lower than our estimate
• Topline for the quarter came in at | 19549.4 crore, up 13.7% QoQ
(our estimate: | 18456.8 crore)
• The EBITDA came in at | 6326.9 crore, up 11.5% QoQ (EBITDA
margin 32.4%) (our estimate: | 6424.2 crore, EBITDA margin: 34.8%)
• Margins came in lower than our estimate due to the subdued
performance of the oil & gas segment due to weaker crude oil prices
• Reported PAT came in at | 1619.3 crore and was higher than our
estimate of | 1056.8 crore
Merger creates most diversified mineral resource company in India
In CY12, the promoter group of Sesa Goa (Vedanta Plc) announced the
group consolidation exercise in India wherein subsequently in CY13
Sterlite Industries was again merged into Sesa Goa with the new entity
being Sesa Sterlite. Sesa Sterlite is now the single entity holding all
business interest of the group in India including Cairn India, Hindustan
Zinc, Balco, Vedanta Aluminium, Sterlite Energy, iron ore segment,
copper operations along with Zinc International. Three Sesa Goa shares
were issued for every five existing Sterlite shares (merger ratio). The
merger finally became effective from August 28, 2013.
Zinc, oil & gas business - feather in the cap
The company’s domestic zinc business (Hindustan Zinc) and oil & gas
business (Cairn India) on a sustainable basis have reported a robust
performance with healthy EBITDA margins, thereby generating good cash
flows for the group. With well charted growth plans and capacity
augmentation in the offing, the aforesaid businesses are expected to
deliver robust performances for the group, going forward.
Aluminium business; higher prices and premiums augur well
After hitting a multi-year low of US$1633.5/tonne during February 2014,
aluminium prices have bounced back and are moving in an upward
direction. On a sequential basis, aluminium prices have increased ~5%
QoQ to US$1798/tonne in Q1FY15. Furthermore, the physical premium
has remained at elevated levels at ~US$475/tonne, which augurs well for
the company. However, going forward, availability of domestic coal is
expected to be lower with lower e-auction volume, which would result in
higher imports, higher coal prices and higher power costs of smelter.
Improvement in LME base metal prices augurs well
We have a positive view on the company’s domestic zinc business (HZL)
and oil & gas business (Cairn India) on account of strong underlying
fundamentals. However, we have a cautious view on Sesa Sterlite on the
back of a huge debt pile (gross debt as on September 30, 2014 at | 79,526
crore) and a skewed EBITDA profile. In Q2FY15, LME prices of all four
major base metals registered an up-tick sequentially, which augurs well
for the company. We have valued the company using SOTP valuation and
arrived at a target price of | 265. We have a HOLD rating on the stock.

:LINK
http://content.icicidirect.com/mailimages/IDirect_SesaSterlite_Q2FY15.pdf