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Sterlite Industries Overweight
STRL.BO, STLT IN
Zinc drives earnings beat as coal problem gets bigger
STLT delivered another strong quarter in tough conditions (particularly for power
and aluminum, given coal costs) driven essentially by zinc earnings. The volume
growth story should continue to play out and broadly offset weakness in
power and aluminum. STLT is still one of the cheapest mining stocks (1.1x P/B,
4.2x EV/EBITDA in FY13E) globally as the market remains concerned about
aluminum and power investments and regulatory overhang.
Earnings snapshot: STLT beat on both EBITDA (Rs27B vs JPMe Rs24B) and
PAT (Rs16.4B vs JPMe Rs13.4B). EBITDA beat was driven by strong zinc
(India and Overseas) and copper smelter earnings, while power and aluminum
were a drag. Higher coal costs flowed through with VAL CoP increasing to
$2344/MT (+33% q/q), while blended CoP for power stood at Rs2.6/unit (+45%
q/q) with Jharsuguda CoP at Rs2.86/unit. PAT beat was driven (other than the
above items) by sharply higher other income at Rs8.4B.
Management commentary on power, aluminum: STLT increased investment
in VAL by Rs9B in the quarter (VED investment declined by similar amount).
Coal remains a key area of concern, with coal costs surging at the power
subsidiary. Management commented that power sales environment is
challenging. While STLT is not guiding to any deferment in the remaining
600MWx2 units, STLT did cite coal availability as the key issue. Aluminum
CoP at VAL increased driven by coal and alumina costs. On Power vs
Aluminum, STLT did highlight that as of now aluminum is more profitable, but
so far has not made a decision to start new smelting capacity.
Key highlights from Annual Report: BALCO (aluminum sub) coal production
guided to 4Q FY12E. More details on the various ports expansion initiatives,
with Vizag port coal berth scheduled for mid-2012. Standalone STLT net cash
drops to Rs12B post zinc asset purchase (should have dropped further at
June end given VAL increase). Total Investment in VAL stood at Rs87B
(which has increased to Rs95B at end Jun-11), investments across power
and overseas zinc stood at Rs111B (debt+equity). Guarantees given have
gone up to Rs158B from Rs76B last year, with VAL seeing a modest decline.
Remain OW with revised PT of Rs230: We revise our earnings for FY12/13
by -6%/-3% to adjust for lower power and aluminum earnings and consequently
revise our PT to Rs230. Key risks include a sharp decline in zinc prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sterlite Industries Overweight
STRL.BO, STLT IN
Zinc drives earnings beat as coal problem gets bigger
STLT delivered another strong quarter in tough conditions (particularly for power
and aluminum, given coal costs) driven essentially by zinc earnings. The volume
growth story should continue to play out and broadly offset weakness in
power and aluminum. STLT is still one of the cheapest mining stocks (1.1x P/B,
4.2x EV/EBITDA in FY13E) globally as the market remains concerned about
aluminum and power investments and regulatory overhang.
Earnings snapshot: STLT beat on both EBITDA (Rs27B vs JPMe Rs24B) and
PAT (Rs16.4B vs JPMe Rs13.4B). EBITDA beat was driven by strong zinc
(India and Overseas) and copper smelter earnings, while power and aluminum
were a drag. Higher coal costs flowed through with VAL CoP increasing to
$2344/MT (+33% q/q), while blended CoP for power stood at Rs2.6/unit (+45%
q/q) with Jharsuguda CoP at Rs2.86/unit. PAT beat was driven (other than the
above items) by sharply higher other income at Rs8.4B.
Management commentary on power, aluminum: STLT increased investment
in VAL by Rs9B in the quarter (VED investment declined by similar amount).
Coal remains a key area of concern, with coal costs surging at the power
subsidiary. Management commented that power sales environment is
challenging. While STLT is not guiding to any deferment in the remaining
600MWx2 units, STLT did cite coal availability as the key issue. Aluminum
CoP at VAL increased driven by coal and alumina costs. On Power vs
Aluminum, STLT did highlight that as of now aluminum is more profitable, but
so far has not made a decision to start new smelting capacity.
Key highlights from Annual Report: BALCO (aluminum sub) coal production
guided to 4Q FY12E. More details on the various ports expansion initiatives,
with Vizag port coal berth scheduled for mid-2012. Standalone STLT net cash
drops to Rs12B post zinc asset purchase (should have dropped further at
June end given VAL increase). Total Investment in VAL stood at Rs87B
(which has increased to Rs95B at end Jun-11), investments across power
and overseas zinc stood at Rs111B (debt+equity). Guarantees given have
gone up to Rs158B from Rs76B last year, with VAL seeing a modest decline.
Remain OW with revised PT of Rs230: We revise our earnings for FY12/13
by -6%/-3% to adjust for lower power and aluminum earnings and consequently
revise our PT to Rs230. Key risks include a sharp decline in zinc prices.
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