Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries – Strong growth at attractive valuations, Buy
Investment thesis
We remove the Not Rated designation on Sterlite Industries (STRL.BO)
and rate the company Buy rating, with a 12-month SOTP based target
price of Rs206 implying 28% potential upside.
Attractive valuations: Sterlite is trading at FY12E EV/EBITDA of 3.1X
which is a 40% discount to global peers at 5.1x and 43% discount to its
mid-cycle multiple of 5.4X. In our view, the market is ascribing no
value to the power business, but is also valuing the base business,
comprising existing productive assets, at a discount.
FY11-13E EPS CAGR of about 45% is the highest in the sector:
Sterlite has sector-leading EPS CAGR of 44% over FY11-13E, driven by
consolidation of the recently acquired Anglo Zinc assets (Zinc
International), strong growth in lead and silver volumes from ongoing
expansion projects, and gradual commissioning of Sterlite Energy’s
2,400 MW commercial energy project in Orissa. We raise our FY12-
FY13 EPS estimates by 19%/30% to account for these new cash flow
streams. We also introduce our FY14E EPS estimate of Rs32.27.
Zinc International – a strategic positive: We view the recent
acquisition of international zinc assets as a strategic positive as: (1)
earnings and cash flow accretive asset with 50% EBITDA margins; (2)
adds a global portfolio of operations in South Africa, Namibia and
Ireland; (3) opportunity to reduce costs through improving operating
efficiencies (FY11 cost of US$1,130 / T); (4) option value to develop the
Gamsberg greenfield project which has resources of about 186 mn
tonnes.
Globally competitive cost base to drive sustainable returns:
Sterlite’s 65%-owned subsidiary Hindustan Zinc is among the lowest
cost producers of zinc in the world (FY11 cost of US$990/T). Even the
copper smelting business at Tuticorin is one of the least cost smelters
with FY11 smelting cost of US 4c/lb due to high recovery rates, better
operating efficiencies and strong by-product credits.
Strong balance sheet: Sterlite had net cash of about US$3bn at end
FY11, which is about 25% of its current market cap – which, in our
view, gives it the flexibility to pursue growth projects.
Risks: (1) Commodity price weakness; (2) delays in growth projects;
(3) overhang of regulatory issues / environmental litigation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries – Strong growth at attractive valuations, Buy
Investment thesis
We remove the Not Rated designation on Sterlite Industries (STRL.BO)
and rate the company Buy rating, with a 12-month SOTP based target
price of Rs206 implying 28% potential upside.
Attractive valuations: Sterlite is trading at FY12E EV/EBITDA of 3.1X
which is a 40% discount to global peers at 5.1x and 43% discount to its
mid-cycle multiple of 5.4X. In our view, the market is ascribing no
value to the power business, but is also valuing the base business,
comprising existing productive assets, at a discount.
FY11-13E EPS CAGR of about 45% is the highest in the sector:
Sterlite has sector-leading EPS CAGR of 44% over FY11-13E, driven by
consolidation of the recently acquired Anglo Zinc assets (Zinc
International), strong growth in lead and silver volumes from ongoing
expansion projects, and gradual commissioning of Sterlite Energy’s
2,400 MW commercial energy project in Orissa. We raise our FY12-
FY13 EPS estimates by 19%/30% to account for these new cash flow
streams. We also introduce our FY14E EPS estimate of Rs32.27.
Zinc International – a strategic positive: We view the recent
acquisition of international zinc assets as a strategic positive as: (1)
earnings and cash flow accretive asset with 50% EBITDA margins; (2)
adds a global portfolio of operations in South Africa, Namibia and
Ireland; (3) opportunity to reduce costs through improving operating
efficiencies (FY11 cost of US$1,130 / T); (4) option value to develop the
Gamsberg greenfield project which has resources of about 186 mn
tonnes.
Globally competitive cost base to drive sustainable returns:
Sterlite’s 65%-owned subsidiary Hindustan Zinc is among the lowest
cost producers of zinc in the world (FY11 cost of US$990/T). Even the
copper smelting business at Tuticorin is one of the least cost smelters
with FY11 smelting cost of US 4c/lb due to high recovery rates, better
operating efficiencies and strong by-product credits.
Strong balance sheet: Sterlite had net cash of about US$3bn at end
FY11, which is about 25% of its current market cap – which, in our
view, gives it the flexibility to pursue growth projects.
Risks: (1) Commodity price weakness; (2) delays in growth projects;
(3) overhang of regulatory issues / environmental litigation.
No comments:
Post a Comment