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Sterlite’s 2QFY2011 consolidated net revenue came in at `6,029cr, in line with
our estimates of `5,863cr. However, net profit at `1,008cr was marginally lower
than our estimates of `1,065cr.
No major surprises, results largely in line: Sterlite reported flat top-line growth, as
the positive impact of higher zinc-lead sales and increased realisations was
negated by lower copper cathode production and power tariff. Sterlite sold
414mn units of merchant power (higher by 23.4% yoy), but power tariff was down
by 15.4% yoy to `3.4/unit. On account of higher LME prices, EBITDA margin
during the quarter grew by 272bp yoy to 24.4% despite cost increases witnessed
in a) the zinc-lead segment (+21.1% yoy at US $977/tonne due to higher met
coke, coal and stripping costs), b) the aluminium segment (+16% yoy at US
$1,748/tonne due to alumina and coal costs) and c) lower TC/RC margins (down
18% to USc 11.8/lb). Consequently, EBITDA grew by 11.5% to `1,474cr. While
other income grew by 76.6% yoy to `578cr, depreciation expenses grew by
22.5% yoy to `212cr. Further, Vedanta Aluminium (VAL) posted loss of `24.7cr in
2QFY2011 v/s profit of `86.3cr in 2QFY2010, leading to mere 5.1% yoy net
profit growth to `1,008cr.
Outlook and valuation: Sterlite is currently trading at 7.3x FY2011E and 4.6x
FY2012E EV/EBITDA. We believe the company is well placed to capitalise on
strong metal demand through its expansion plans in the zinc-lead segment,
higher merchant power and silver sales. Moreover, the settlement of the Balco
and Hindustan Zinc (HZL) call option could provide a further upside to our target
price. However, we keenly wait for the revised capex plans of the company and
the outcome of the ongoing Tuticorin’s litigation. We maintain Accumulate on the
stock with an SOTP-based Target Price of `196.
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