Sterlite Industries: Expect a modest quarter: Nomura research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We expect a stable quarter – not much to look forward to
We expect Sterlite Industries to have a modest quarter with not much
expectations of change from last quarter apart from better lead and silver
volumes. With prices remaining stable and aluminium and power
businesses continuing to see high costs, we don’t expect quarterly
results to have a significant impact on stock outlook.
We expect consolidated EBITDA of INR 25.2bn, up from INR 23.2bn in
Q3FY12 largely on account of improvement in Hindustan Zinc results
(HZ IN, Neutral). We expect Hindustan Zinc (HZ IN, Neutral) to see
EBITDA of INR 15.8bn, up from INR 14bn in Q3FY12.
We expect net profit of INR 13.6bn for Sterlite (up from INR 9.1bn in
Q3FY12) and INR 14.5bn for HZ (up from INR 12.7bn in Q3FY12).
Lead and silver volumes ramp up during the quarter
Lead and silver smelters at Hindustan Zinc commissioned during the last
quarter have started to ramp up and reported production of 37,000
tonnes and 2.8mn ounces respectively during the quarter, up from
28,000 tonnes and 1.8mn ounces respectively in Q3FY12. Please note
that lead volume growth is despite the closure of its smelter at Vizag
(which produced 28,000 tonnes in FY12).
Apart from this, most other volumes are largely flat. Sterlite Energy (not
listed) continues to operate at a PLF of less than 50% on limited coal
availability.
Supported by stable metal prices…
Along with volume expansion, metal prices have remained stable up 3-
5% QoQ and should support earnings. With INR/USD rate also
remaining at close to 50, the company should see strong realizations.
Aluminium and power operations remain a drag
Sterlite continues to see stress in aluminium and power operations.
While the external purchase of bauxite should keep the cost of
production high, we believe the company should see marginal
improvement at Vedanta Aluminium (not listed) as operations normalize
(last two quarters were affected by pot outage). We still expect Sterlite’s
share of losses at VAL at INR 1.5bn (down from 2.6bn in Q3FY12).
At the same time the power business continues to operate at a PLF
(plant load factor) of close to 45% (on a capacity of 1800MW). However,
in March 2012, PLF has seen a jump to 58%; we need to watch whether
the company can maintain these high levels over a longer period.
Key points from production release:
 Rampur Agucha mine would produce lower volumes in H1FY13,
however, overall zinc volumes (at HZ IN) should be marginally higher
in FY13F.
 The company has guided for close to 11mn ounces of silver
production in FY13, which is 10-15% lower than its earlier guidance
but in line with our estimates.
 The company has commissioned the third unit of 600MW power plant
while the fourth unit has been synchronized and should start
commercial production from early Q1FY13.
 The Balco coal block is still waiting for second-stage forest clearance
and there is still no clarity on bauxite mine either.
 The company has also not provided any clarity on the issue of coal
linkage for SEL (Sterlite Energy). It has said that it has not yet decided
on signing the long-term PPA.