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Sterlite Industries (India) Ltd--------------------------------------------- Maintain OUTPERFORM
The basket continues to deliver
● HZL results were released on 22 July (and were stronger than
expected). Today’s Sterlite results, therefore, threw light on: (1) Zn
International, (2) Sterlite Energy, (3) Balco and 4) VAL.
● EBITDA was 10% ahead of expectations, as strong performance in
Zinc international (higher volumes, healthy costs) and the Copper
business (higher Tc/Rc and better by-product prices) offset
weakness in Sterlite Energy (higher costs) and VAL (higher costs
and lower production).
● Coal shortages, and thus lower utilisation and higher costs for new
power capacities at SEL and Balco are likely to continue. Further,
VAL volumes are likely to be lower in 2Q–3Q12 as well. Increase in
Sterlite’s investment in VAL by ~US$200 mn is not likely to please
investors, but should be offset by the lower loan guarantees, as only
US$1 bn of external debt is guaranteed by Sterlite (on March 2011).
● We cut our FY12 and FY13 EPS by 11% and 8%, respectively, due
to weakness in Sterlite Energy and reduction in our Zn price
forecasts. Target price falls to Rs210 due to the fall in the SEL value.
We believe it remains cheap. Maintain OUTPERFORM.
HZL results were released before—Sterlite results, therefore, threw light
on: (1) Zn International, (2) Sterlite Energy, (3) Balco and (4) VAL.
Zinc International surprises positively, costs up across
While net sales were in line, strong performance in Zinc international and
Copper (due to higher by-product revenue) offset weak SEL results
leading to EBITDA beating our estimates by 10%.
● Zn International: Production was up 50% and costs flat YoY.
● SEL: While sales were better than expected (ASP: Rs 3.5), costs
increased to Rs2.85/unit (compared with 4Q11: Rs2.3/unit) due to
the lack of coal. Management expects costs to remain high.
● Balco: Primary Al cost up US$200/t QoQ, due to higher Alumina.
● VAL: Costs up US$250/t QoQ, with ~US$150/t due to higher coal
costs. VAL losses were Rs3.6 bn. Power outage led to 170 pots
being impacted, and hence lower volumes likely to continue in 2Q–
3Q12.
● Other income: Rs1410 mn was non-recurring income in 1Q12.
Key takeaways from conference call
● Coal: No visibility yet on improvement in coal availability for SEL.
● Power: SEL third unit and Balco first unit to be commissioned in 2Q12.
● VAL: Sterlite’s investment in VAL went up by US$200 mn to US$2.1
bn.
● Bauxite: No further visibility on new mines. Management exploring
options of using power to make Al at VAL using imported Alumina.
● Zinc International: Management hopes to increase volumes as well
as reserves and resources through exploration.
Weakness in power, cutting EPS and TP
We cut our FY12 and FY13 EPS by 11% and 8%, respectively, due to
weakness in Sterlite Energy and reduction in our Zn price forecasts.
Target price falls to Rs210 due to the fall in the SEL value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries (India) Ltd--------------------------------------------- Maintain OUTPERFORM
The basket continues to deliver
● HZL results were released on 22 July (and were stronger than
expected). Today’s Sterlite results, therefore, threw light on: (1) Zn
International, (2) Sterlite Energy, (3) Balco and 4) VAL.
● EBITDA was 10% ahead of expectations, as strong performance in
Zinc international (higher volumes, healthy costs) and the Copper
business (higher Tc/Rc and better by-product prices) offset
weakness in Sterlite Energy (higher costs) and VAL (higher costs
and lower production).
● Coal shortages, and thus lower utilisation and higher costs for new
power capacities at SEL and Balco are likely to continue. Further,
VAL volumes are likely to be lower in 2Q–3Q12 as well. Increase in
Sterlite’s investment in VAL by ~US$200 mn is not likely to please
investors, but should be offset by the lower loan guarantees, as only
US$1 bn of external debt is guaranteed by Sterlite (on March 2011).
● We cut our FY12 and FY13 EPS by 11% and 8%, respectively, due
to weakness in Sterlite Energy and reduction in our Zn price
forecasts. Target price falls to Rs210 due to the fall in the SEL value.
We believe it remains cheap. Maintain OUTPERFORM.
HZL results were released before—Sterlite results, therefore, threw light
on: (1) Zn International, (2) Sterlite Energy, (3) Balco and (4) VAL.
Zinc International surprises positively, costs up across
While net sales were in line, strong performance in Zinc international and
Copper (due to higher by-product revenue) offset weak SEL results
leading to EBITDA beating our estimates by 10%.
● Zn International: Production was up 50% and costs flat YoY.
● SEL: While sales were better than expected (ASP: Rs 3.5), costs
increased to Rs2.85/unit (compared with 4Q11: Rs2.3/unit) due to
the lack of coal. Management expects costs to remain high.
● Balco: Primary Al cost up US$200/t QoQ, due to higher Alumina.
● VAL: Costs up US$250/t QoQ, with ~US$150/t due to higher coal
costs. VAL losses were Rs3.6 bn. Power outage led to 170 pots
being impacted, and hence lower volumes likely to continue in 2Q–
3Q12.
● Other income: Rs1410 mn was non-recurring income in 1Q12.
Key takeaways from conference call
● Coal: No visibility yet on improvement in coal availability for SEL.
● Power: SEL third unit and Balco first unit to be commissioned in 2Q12.
● VAL: Sterlite’s investment in VAL went up by US$200 mn to US$2.1
bn.
● Bauxite: No further visibility on new mines. Management exploring
options of using power to make Al at VAL using imported Alumina.
● Zinc International: Management hopes to increase volumes as well
as reserves and resources through exploration.
Weakness in power, cutting EPS and TP
We cut our FY12 and FY13 EPS by 11% and 8%, respectively, due to
weakness in Sterlite Energy and reduction in our Zn price forecasts.
Target price falls to Rs210 due to the fall in the SEL value.
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