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Sterlite signaled a strong start to the year with 1QFY12 EBITDA of Rs27.6bn, above our estimate
of Rs24.9bn. Earnings were driven by strong performances at both the Indian and international
operations of the zinc business. We maintain Buy with a TP of Rs225.
1QFY12 results: above expectations
1QFY12 net revenues were at Rs98.6bn (+66% yoy and -1% qoq). Copper revenues were at
Rs45bn (+55% yoy and -6% qoq) while aluminium revenues were at Rs7.5bn (+24% yoy and
-10% qoq). Zinc, lead and silver revenues were at Rs38.4bn (+99% yoy and -4% qoq) driven
by robust production volumes and stable LME prices while power revenues surged to
Rs6.1bn, up from Rs2.2bn in 4Q due to the operationalization of the second 600MW unit of
Sterlite Energy (SEL).
EBITDA was at Rs27.6bn (+90% yoy and -8% qoq), above our estimate of Rs24.9bn. This
was driven by EBITDA of Rs20.7bn from the zinc-lead-silver business. Copper contributed
Rs3.3bn while aluminium contributed Rs1.9bn and power contributed Rs1.7bn.
Other income rose to Rs8.4bn, up 8% qoq. Tax rate was stable at 20%. Net profit was
Rs16.4bn (+63% yoy and -16% qoq) versus our estimate of Rs15.5bn.
Zinc-lead-silver: Remains robust
Refined zinc production was 193kt for the quarter (+17% yoy and -1% qoq) while saleable
lead production was 15kt (+4% yoy and -12% qoq). Silver provided the fillip with saleable
production of 40 tonnes (+7% yoy and -7% qoq) and surplus lead concentrate sales of 10.1kt
including 17 tonnes of payable silver.
The 100kt lead smelter was commissioned during the quarter and this will pave the way for
incremental lead volumes as well as raising silver capacity to 500 tonnes with the
commissioning of the new 350 tonne silver refinery. The Sindesar Khurd mine is expected to
reach capacity of 2mt by end FY12F.
Zinc international posted robust volume growth of 12% with total volumes of 119kt. EBITDA
contribution was Rs5.2bn while profit was Rs3.2bn. Management noted during the call that
they expect the operations to be stable going forward and expect to add to its reserves and
resources through exploration efforts.
Copper: Strong conversion margins
Copper cathode production was 74kt (-4% yoy and -10% qoq), impacted by lower concentrate
grade and reduced plant availability due to unscheduled maintenance shutdowns. Net cost of
production was (2.9) c/lb due to higher by-product credits and improved metal recovery
credits. This drove copper EBITDA to Rs3.3bn.
The construction of the copper CPP is on schedule and the first unit is expected to be
commissioned by 4QFY12.
Aluminium: VAL remains under pressure
Balco continues to operate at rated capacity with production of 61kt. Aluminium production at
associate company Vedanta Aluminium (VAL) was 112kt while alumina production was 224kt.
Cost of production continued to be impacted due to high cost of coal. CoP at VAL was
US$2,344/t for the quarter. Costs at VAL is expected to remain elevated over the next two
quarters.
Due to a power outage, about 170 pots at Jharsuguda have been impacted which is expected
to impact production in 2Q and 3Q. Cost of revival was estimated by management to be
US$2mn.
Balco reported an EBITDA of Rs1.9bn while VAL reported a loss of Rs3.6bn for the quarter.
Investment in VAL by Sterlite was Rs95.1bn at the end of 1Q. This is expected to remain at
current levels for rest of FY12.
Energy: Double-whammy of lower realization and higher costs
The second unit of the 2400MW IPP was commissioned during the quarter and this drove
surplus energy sales of 1,652MU for the quarter. Average power realizations were mute at
Rs3.6/unit compared to Rs4.9/unit in 1QFY11.
Realizations at the 2400MW IPP was Rs3.5/unit while CoP was Rs2.86/unit, driven by high
coal costs.
Management noted that the commissioning of the remaining 2 units are on track for 3Q and
4QFY12. While dependency on e-auction coal remains an issue (only ~40% got through
linkage), it does not see a deferment in commissioning of the remaining units.
Group level highlights
Capex is expected to be Rs80bn for FY12/13, mainly towards Korba expansion and Sterlite
energy.
Total gross debt was Rs130bn while cash was Rs230bn leading to net cash of Rs100bn at
the group level.
We have a Buy rating on Sterlite with TP of Rs225.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite signaled a strong start to the year with 1QFY12 EBITDA of Rs27.6bn, above our estimate
of Rs24.9bn. Earnings were driven by strong performances at both the Indian and international
operations of the zinc business. We maintain Buy with a TP of Rs225.
1QFY12 results: above expectations
1QFY12 net revenues were at Rs98.6bn (+66% yoy and -1% qoq). Copper revenues were at
Rs45bn (+55% yoy and -6% qoq) while aluminium revenues were at Rs7.5bn (+24% yoy and
-10% qoq). Zinc, lead and silver revenues were at Rs38.4bn (+99% yoy and -4% qoq) driven
by robust production volumes and stable LME prices while power revenues surged to
Rs6.1bn, up from Rs2.2bn in 4Q due to the operationalization of the second 600MW unit of
Sterlite Energy (SEL).
EBITDA was at Rs27.6bn (+90% yoy and -8% qoq), above our estimate of Rs24.9bn. This
was driven by EBITDA of Rs20.7bn from the zinc-lead-silver business. Copper contributed
Rs3.3bn while aluminium contributed Rs1.9bn and power contributed Rs1.7bn.
Other income rose to Rs8.4bn, up 8% qoq. Tax rate was stable at 20%. Net profit was
Rs16.4bn (+63% yoy and -16% qoq) versus our estimate of Rs15.5bn.
Zinc-lead-silver: Remains robust
Refined zinc production was 193kt for the quarter (+17% yoy and -1% qoq) while saleable
lead production was 15kt (+4% yoy and -12% qoq). Silver provided the fillip with saleable
production of 40 tonnes (+7% yoy and -7% qoq) and surplus lead concentrate sales of 10.1kt
including 17 tonnes of payable silver.
The 100kt lead smelter was commissioned during the quarter and this will pave the way for
incremental lead volumes as well as raising silver capacity to 500 tonnes with the
commissioning of the new 350 tonne silver refinery. The Sindesar Khurd mine is expected to
reach capacity of 2mt by end FY12F.
Zinc international posted robust volume growth of 12% with total volumes of 119kt. EBITDA
contribution was Rs5.2bn while profit was Rs3.2bn. Management noted during the call that
they expect the operations to be stable going forward and expect to add to its reserves and
resources through exploration efforts.
Copper: Strong conversion margins
Copper cathode production was 74kt (-4% yoy and -10% qoq), impacted by lower concentrate
grade and reduced plant availability due to unscheduled maintenance shutdowns. Net cost of
production was (2.9) c/lb due to higher by-product credits and improved metal recovery
credits. This drove copper EBITDA to Rs3.3bn.
The construction of the copper CPP is on schedule and the first unit is expected to be
commissioned by 4QFY12.
Aluminium: VAL remains under pressure
Balco continues to operate at rated capacity with production of 61kt. Aluminium production at
associate company Vedanta Aluminium (VAL) was 112kt while alumina production was 224kt.
Cost of production continued to be impacted due to high cost of coal. CoP at VAL was
US$2,344/t for the quarter. Costs at VAL is expected to remain elevated over the next two
quarters.
Due to a power outage, about 170 pots at Jharsuguda have been impacted which is expected
to impact production in 2Q and 3Q. Cost of revival was estimated by management to be
US$2mn.
Balco reported an EBITDA of Rs1.9bn while VAL reported a loss of Rs3.6bn for the quarter.
Investment in VAL by Sterlite was Rs95.1bn at the end of 1Q. This is expected to remain at
current levels for rest of FY12.
Energy: Double-whammy of lower realization and higher costs
The second unit of the 2400MW IPP was commissioned during the quarter and this drove
surplus energy sales of 1,652MU for the quarter. Average power realizations were mute at
Rs3.6/unit compared to Rs4.9/unit in 1QFY11.
Realizations at the 2400MW IPP was Rs3.5/unit while CoP was Rs2.86/unit, driven by high
coal costs.
Management noted that the commissioning of the remaining 2 units are on track for 3Q and
4QFY12. While dependency on e-auction coal remains an issue (only ~40% got through
linkage), it does not see a deferment in commissioning of the remaining units.
Group level highlights
Capex is expected to be Rs80bn for FY12/13, mainly towards Korba expansion and Sterlite
energy.
Total gross debt was Rs130bn while cash was Rs230bn leading to net cash of Rs100bn at
the group level.
We have a Buy rating on Sterlite with TP of Rs225.
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