Query Corner: Adani Enterprises, Great Offshore, OnMobile, SREI infra, Sterlite Technologies, Ion Exchange, Jayshree Tea ::Business Line

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Please let me know the technical prospects of Adani Enterprises bought at Rs 374.

A. Pradeep Kumar

Adani Enterprises (Rs 288.3): Adani Enterprises went into tailspin between July 2011 and January 2012. The stock dropped from Rs 765 to Rs 261 in this period. The recovery in January from this trough could not get past the first medium-term resistance at Rs 456 and the stock is pinning out of control again.

Immediate support is at the recent trough at Rs 261. This also coincides with the trough formed in March 2008. If this low is breached, next halt can be at Rs 220. Further fall will drag it to the March 2009 trough at Rs 120.

Investors should, therefore, hold the stock only as long as it trades above Rs 261. Resistances for the months ahead would be at Rs 456, Rs 515 or Rs 574. Long-term view will turn positive only on a move above Rs 574. Investors with a smaller investment horizon should, therefore, divest their holdings if the stock struggles to get past these resistances.

Sell Sterlite Technologies; Target : Rs 31 ::ICICI Securities

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D i s a p p o i n t i n g   o n c e   a g a i n…
Sterlite Technologies reported disappointing Q3FY12 results as revenues
came below our expectations at | 664 crore (I-direct estimate: | 755
crore). This was mainly on the back of a 3% decline in power conductor
volumes. Though reported EBITDA  was in line at | 56 crore (EBITDA
margins for Q3FY12 stood at 8%), stabilisation issues on the expanded
fibre capacity led to subdued telecom segment margins. Consequently,
higher interest costs (up 80% YoY) and adverse impact on a merger of
Sterlite Infratech (9 month loss of | 6 crore) impacted PAT, which came in
at | 9 crore, down 45% YoY. Going ahead we believe, a miss in volume
guidance, high interest & depreciation costs will lead to earnings
downgrade for FY12 and FY13.
ƒ Highlights of the quarter
The order backlog for Q3FY12 stood at | 2400 crore. The power segment
comprises 90% of the overall backlog as the segment witnessed order
inflows to the tune of | 664 crore.  In the power segment, orders from
PGCIL stood at | 1200 crore. During Q3FY12, volumes declined 3% YoY
to 32,600 MT and EBITDA/tonne improved to | 7980/tonne, up 23% YoY.
In the telecom segment, volumes for optical fibre and optical fibre cable
stood at 2.9 million fibre km (fkm) and 0.9 mn fkm, respectively.
Stabilisation issues on the expanded capacity marred margins in the
telecom segment as it remained flattish QoQ at 15.9%. On infrastructure
projects, the management expects equity infusion of | 1,000 crore by
FY14 (| 220 crore equity infused till Q3FY12) and expects all projects to
get commissioned by FY14.
V a l u a t i o n
At the CMP of | 37, the stock is trading at 31x and 11x on FY12E and
FY13E EPS, respectively. Though we believe FY13 will look better for the
company, at the same time, we would wait for the performance delivery
to happen before getting positive. We value the company at 10x its FY13E
EPS and arrive at a price target of | 31 and downgrade the stock to SELL

Buy Sterlite Technologies; Target : Rs 43 ::ICICI Securities,

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M a r g i n s   m i s s   i n   t e l e c o m   s e g m e n t …
Sterlite Technologies reported a mixed set of results as revenues came in
above our expectations at | 707 crore (I-direct estimate: | 571 crore). The
revenue beat was led by the power segment wherein volumes for the
power conductor grew 35% YoY. However, overall margins at 7.1% (Idirect estimate: 8.3%) were below  our expectations as both the power
and telecom segment disappointed in terms of margin delivery. Coupled
with this, PAT was also impacted due to higher interest costs and
recorded a decline of 78% YoY vs.  our expectations  of 66% decline.
Going ahead, although margins and profitability will look up in H1FY12 as
lower margin power orders will get executed by then and telecom
segment will get back on track, it will still call for earnings downgrade as
the management has finally revised  down their guidance for the FY12
performance.
ƒ Highlights of the quarter
The current order backlog stands at | 2400 crore out of which the power
sector accounts for | 2100 crore of orders. We believe the pain in the
power segment in terms of execution of low margins orders will get over
by Q3FY12. Hence, we will witness an uptick in segmental margins. The
other key negative surprise was the contraction of margins in the telecom
segment to 15.6% due to higher input costs and stabilisation issues with
the expanded capacity. In terms of volume, the power segment sold
36,000 MT of power conductor and telecom segment volume for optic
fibre and fibre optic cable stood at 2.8 million km and 0.8 million km,
respectively.
V a l u a t i o n
At the CMP of | 38, the stock is trading at 14x and 8x on FY12E and FY13E
EPS. Though we believe that FY13 will look better for the company, we
would be buyers into the stock once the company starts delivering from
H2FY12. We have valued the stock at 9x its FY13E EPS and arrived at a
price target of | 43 (earlier | 53).

Sterlite Technologies Telecom margins take a hit, Maintain HOLD :Emkay,

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Sterlite Technologies

Telecom margins take a hit, Maintain HOLD

HOLD

CMP: Rs 38                                       Target Price: Rs 47

---

n     Revenue at Rs7.0bn, up 38.8% yoy led by strong growth from power segment. EBITDA at Rs504mn declined 44.3% yoy with EBITDA margin at 7.1%. Telecom margin down 1318bps yoy

n     PAT at Rs126mn was down 78.0% yoy (our est. of Rs140), led by 44.4% and 41.8% decline in EBITDA in Power & Telecom segment, respectively followed with high interest cost

n     Cut EPS by 26.9%/ 8.0% for FY12E/13E to Rs2.9/Rs5.2 due to margin pressure in telecom segment pertaining to capacity expansion

n     Maintain HOLD with revised TP of Rs47 (earlier Rs51). Valuation at 13.2x and 7.4x on our EPS estimate of Rs2.9/5.2 for FY12E/13E 

Sterlite Technologies- Waiting for positive vibes, Maintain HOLD :Emkay

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Sterlite Technologies

Waiting for positive vibes, Maintain HOLD

HOLD

CMP: Rs50                                        Target Price: Rs51

---

n     Q1FY12 profit of Rs52mn, down 90.6% yoy (significantly below our est. of Rs138mn). Led by lower revenue growth & dented EBITDA margin in both Power and Telecom biz

n     Low margin orders in power further squeezed margins to 2.1% v/s 13.2% in Q1FY11 & 2.8% in Q4FY11. Drop in realization dented telecom margins to 23.3% v/s 28.8% in Q1FY11

n     Cut EPS by 26.2%/ 15.0% for FY12E/13E to Rs4.0/Rs5.6 due to poor margin trend and significant inc. in interest cost

n     Maintain HOLD with revised TP of Rs51 (earlier Rs54). Valuation at 12.7x and 8.9x on our EPS estimate of Rs4.0/5.6 for FY12E/13E 

Hold Sterlite Technologies; Target : Rs 54:: ICICI Securities

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P a i n   c o n t i n u e s …
Sterlite Technologies reported a dismal set of Q1FY12 results as the
company continues to feel pressure from the execution of low margin
orders in the power segment. Revenues at | 547 crore were up 11% YoY
(I-direct estimate: | 577 crore.). EBITDA margins continued to disappoint
at 5.5% (I-direct estimate: 8.3%) mainly led by low margin orders
executed in the power segment. Power segment EBITDA margins of 2.1%
were somewhat cushioned by expansion in telecom segment margins at
23.3%. Interest expenses, on the other hand, have risen sharply 207%
YoY. This coupled with weak operational margins led to PAT decline of
91% YoY and 49% QoQ. Earlier guidance of | 400 crore of EBITDA in
FY12E seems difficult given weaker than expected Q1FY12 performance.
ƒ Highlights of the quarter
Order backlog at | 2400 crore, up 9% QoQ provides reasonable visibility.
However, the performance in terms of operating margins and PAT growth
would only get reflected in H2FY12 when the low margin power order
gets depleted by Q2FY12. Volumes in the power and telecom segment
are in line with estimates for Q1FY12. However, margins of 2.3% in the
power segment spoiled the party. Hence, in spite of recovery in H2FY12,
the company will fall short of its earlier guidance for FY12E. We have not
tweaked the revenue projections as we expect the volume targets to be
achieved. However, at the same time, we have revised down the EBITDA
and PAT numbers owing to lower-than-expected margins in the power
segment and a sharp rise in borrowing costs.
V a l u a t i o n
The stock has continuously underperformed the broader markets owing
to repeatedly dismal quarterly results. The base guidance of | 400 crore
for FY12 seems difficult to achieve in the light of | 30 crore of EBITDA in
Q1FY12E, which has led us to revise down the EBITDA and PAT for FY12
and FY13E. The stock will currently languish till the performance of the
power segment picks up. Hence, we have reduced the target price from |
63 to | 54 and rate the stock as HOLD.

Sterlite Technologies - Disappointment continues; Hold :: Edelweiss

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Results below estimates; margin continues to decline
Sterlite Technologies (SOTL) reported yet another disappointing quarter, below our
and consensus’ estimates. Revenue growth was low 3.0% Y-o-Y, at INR 6.8 bn; it
increased 7.0% in the power segment, to INR 5.1 bn, and dipped 7.6% in telecom,
to 1.7 bn, Y-o-Y. EBITDA dropped sharply by 55.5% Y-o-Y to INR 490 mn, as
EBITDA margin came off 944bps Y-o-Y to 7.2%, led by both power conductor and
telecom segments. PAT fell sharper by 86% Y-o-Y, to INR 103 mn, as depreciation,
interest and tax rate increased during the quarter.

Another dull quarter… Sterlite Technologies ::ICICI Securities

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Another dull quarter…
Sterlite Technologies reported another set of dull numbers, mainly led by
the disappointment in the power segment (execution of low margin
orders dented overall EBITDA accompanied by a sequential decline in
telecom segment margins). Revenues grew 3% YoY ahead of our
expectations. EBITDA margins continued to disappoint at 7.2% (I-direct
estimate of 12.9%) mainly led by low margin orders executed in the
power segment and a sequential decline in telecom segment margins.
The same impacted the PAT adversely as it de-grew 86% YoY and 40%
QoQ. Going ahead, we believe that recent orders wins will pull back the
revenue growth and margins of the company in FY12E.

Sterlite Technologies Earnings cut by 22%, Downgrade to hold : EMkay

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Sterlite Technologies

Earnings cut by 22%, Downgrade to hold

HOLD

CMP: Rs 59                                       Target Price: Rs 54

---

n     Q4FY11 profit of Rs103mn, down 85.7% yoy (significantly below our est. of Rs425mn). Decline was led by dented EBITDA margin in both Power and Telecom biz

n     Low margin orders in power further squeezed margins to 2.8% v/s 12.0% yoy. Drop in realization dented Telecom margins to 20.6% v/s 31.6% in Q4FY10

n     Cut FY12E EPS by 22% to Rs5.4 due to poor margin trend and rise in all below line items

n     Downgrade rating to HOLD (from BUY) and target price to Rs54 (from Rs68 earlier) post significant disappointment and poor profitability trend

Sterlite Technologies:: Emkay: Top Recommendations: April 2011

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RECO : BUY TP : Rs68
Investment Rationale
§ Vedanta group promoted Sterlite Technologies is the largest manufacturer of power conductors in India (capacity
of 160,000 MT) and only Indian manufacturer for optic fiber (capacity 12mn fkms).
§ While demand environment for both power and telecom sector’ remains strong, growth would be led by brown
field expansion in power conductors (to 200,000 MT), optic fiber (20mn fkms) and optic cables (6mn to 10mn
fkms)
§ As on Dec 10, total order book stood at Rs 17bn, recently it has won orders worth Rs4bn from PGCIL. Provides
adequate earning visibility in near term
§ STL has won 3 UMPTP projects worth RS40bn on Build, Own, Operate and Maintain (BOOM) basis. The
projects would get operational by end of FY14E, giving an additional revenue stream to the company
§ We estimate Revenue, EBIDTA and PAT CAGR of 11.9%, 11.2% and 11.8% respectively over FY10-13E
Valuations
§ At CMP of Rs58,stock is available at an attractive valuation of 13.3x EPS of Rs 4.4 for FY11E and 8.6x EPS of
Rs 6.8 for FY12E. The stock has seen a steep price correction in recent past due to disappointing performance
in Q3FY11, owing to delays in order inflow from PGCIL coupled with realization drop in optic fibre business.
However, we believe the worst is behind us and considering the opportunity from the transmission segment
would also increase the revenue stream for the company going forward

Sterlite Technologies: target price of `72 : ULJK Mid Cap Investment Ideas

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Sterlite Technologies Limited
Investment Rationale
Business Drivers remains intact: Business drivers set to recover in FY12E. We believe
Q3 FY2011 marked a bottom for revenues and margins. Management expects Power
segment to benefit from PGCIL’s large chunk of orders expected in Q4FY2011E. Recently,
STL received third UMPT project from PGCIL. Power conductor orders for about
240,000 tonnes are to be released in the remaining period of 11th plan of which about
180,000 tonnes are expected to be released in Q4FY11E itself.

BUY Sterlite Technologies; target Rs 96; Worst is over! - KRChoksey

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Sterlite Technologies Ltd (STL) posted Q3FY11 results which were below our
expectations on margins front. STL registered top line of Rs 579 crore against our
expectation of Rs 542 crore, de-growth of 33% y-o-y. However insufficient order
inflows from PGCIL during the quarter and lower realisations led EBITDA and PAT
margins to decline significantly by 460 bps and 555 bps respectively y-o-y
(against our estimates of decline of 371bps and 219 bps).

JP Morgan: buy Sterlite Tech: Business set to recover following dismal 3Q, target Rs76

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Sterlite Technologies Ltd
Overweight; STTE.BO, SOTL IN
Business set to recover following dismal 3Q, revise TP to Rs76



• Revising Earnings and Price Target on the back of disappointing
3Q: We cut our FY11E-FY13E EPS by 33%-50% incorporating dismal
3Q results (70% below our estimates) and potentially weak 4Q. We are
factoring in a recovery in FY12E, but below the management guidance
range of Rs4B-Rs5B EBITDA for FY12E. We accordingly reduce our
Sep-11 PT to Rs76, based on 12x Sep-12E P/E.

Sterlite Technologies - Power segment EBITDA margins tank… ICICI Sec

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Sterlite Technologies - Power segment EBITDA margins tank… 
Sterlite Technologies (STL) reported a disappointing set of numbers for
Q3FY11, which were below Street consensus and our estimates.
Though the revenues were in line at | 580 crore (I-direct estimate: | 595
crore), the huge negative came in from operating margins at 8%, down
1000 bps QoQ and 460 bps YoY. This was mainly driven by the stiff fall
in EBITDA margins in the power segment, which came in at 2.9% for
Q3FY11 as some of the low value  jobs were executed during the
quarter. Overall margins came in at 7.4% in Q3FY11. As a result, PAT
came in at  | 17 crore vs. our expectations of  | 60 crore, implying degrowth of 77% YoY and 70% QoQ.

STERLITE TECHNOLOGIES Disappointing results: Edelweiss

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STERLITE TECHNOLOGIES
Disappointing results


􀂄 Results nosedive on all fronts
Sterlite Technologies (SOTL) reported disappointing Q3FY11 results, below our and
consensus estimates. Revenues degrew 33.2% Y-o-Y, to INR 5.8 bn, primarily led
by sharp fall in telecom revenues, which were down 64.9% (to INR 1.6 bn) and flat
revenue growth in the power segment. The telecom segment was down on the back
of: (a) high base effect of Q3FY10; (b) lower sales to China; (c) no sale from access
business and (d) optical fibre price drop. Power segment revenues were hampered
due to: (a) lower conductor volume; and (b) lack of order flows from Power Grid
Corporation (PGCIL).

Emkay: Sterlite Technologies Worst is behind, Upgrade to BUY

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Sterlite Technologies

Worst is behind, Upgrade to BUY

BUY

CMP: Rs 55                                        Target Price: Rs 68

---

n     Q3FY11 profit of Rs171mn, significantly below our est. of Rs606mn, dragged by lower EBITDA margin in Power biz

n     Execution of low margin orders in absence of orders from PGCIL, led to sharp fall in power margins to 2.9% v/s average of 12-13%

n     Cut EPS estimate    s by 31% /18% to Rs4.4 /6.8 for FY11E & FY12E respectively mainly due to cut in profitability in power and realization in fiber

n     Stock price correction factors disappointments- Upgrade rating to BUY from HOLD earlier with revised target price of Rs68 (from Rs100 earlier)

Buy Sterlite Technologies; Bottoming out; Target Rs 97.5: Nomura

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Action
At Sterlite, our BUY call stands on a new price target of INR 97.5, down from INR
110. It has a dominant position in the local-optical fibre and power-conductor
businesses, both of which have strong demand drivers. Owing to a delay in orders
from PGCIL, low margin orders in the power conductor business and a fall in
realisation of optical fibre, performance may not meet our prior expectations.
Catalysts
Capacity expansion plans and continuing demand for its products will likely lead to
EPS growth of more than 20% from FY12 onwards.
Anchor themes
We think Sterlite is a play on industrial (telecom) and infrastructure (power
transmission) capex in India. In line with our theme report — small plays on big
capex idea — we expect a pick-up in industrial and infrastructure capex, especially
from FY12F onwards.

Sterlite Tech 55% Upside ENAM 2011 TOP Pick

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Sterlite Tech 55% Upside ENAM 2011 TOP Pick 


Long Term Intact
● Sterlite Technologies Ltd (STL) is a play on the high‐growth Telecom and Power sectors in emerging
markets. Parentage of Sterlite Group lends strength to STL. The Group, among the lowest cost metal
producers globally, has an enviable track record in executing large projects continuously, in a timely

manner.

Buy Sterlite Technologies: 2011 Mid-Cap pick: Antique

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Sterlite Technologies Limited -Spools of growth


Investment rationale
Operational scale and market leadership
Sterlite Technologies Ltd. (STL) is a market leader in the OF, OFC and Power
Conductors segments and is amongst the ‘Top Five’ global manufacturers in
both segments. It has built up strong manufacturing expertise in noth verticals
and is amongst the cheapest global manufacturers in both segments. Its
domestic market share is ~ 25%, with a sizeable portion of the National Grid
(~25%) set up using its conductors. In the OF and OFC segments, STL has
50% market share in India, 7% in China and 4% in CIS.

Sterlite Technologies:Slowdown in order inflows:: Daiwa

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Sterlite Technologies (SOTL IN) Rating:2
Slowdown in order inflows could dampen earnings growth for FY11



What has changed?
 While Sterlite Technologies’s (SOTL) 2Q FY11 results were broadly in line with
our forecasts, there was disappointment from management’s hint of a possible
downward revision to its FY11 guidance due to a slowdown in order inflows.
Impact
 2Q FY11 results were broadly in line with our forecasts. SOTL recorded a
net profit of Rs576m, a rise of 4% QoQ, driven by a 4% QoQ increase in
revenue. Strong revenue growth for the high-margin telecom segment helped
the EBITDA margin expand by 90 basis points QoQ.
 Slowdown in power segment’s order inflows. Order inflows for the power
segment have slowed for the past two quarters, as SOTL’s largest client, Power
Grid (Not rated), is following a two-stage bid evaluation process now, thereby
delaying contract awards. The slowdown in order inflows contributed to muted
revenue growth sequentially for the power segment, which contributes 60% of
SOTL’s revenue on average.
 We have revised down our FY11 EPS forecast by 15%. We have revised
down our forecasts for the power segment to factor in reduced power-conductor
sales (by 20% for FY11). We have revised down our revenue forecasts by 15%
for each of FY11 and FY12 and our EPS forecasts by 15% for FY11 and 11%
for FY12.
Valuation
 We have lowered our DCF-based six-month target price to Rs107 from Rs124,
to reflect the downward revisions to our earnings forecasts.
Catalysts and action
 We expect order inflows to return to a normal level in one-to-two quarters, as
we expect Power Grid expedite the tendering process to meet its five-year capex
plan (which ends in FY12). We maintain our 2 (Outperform) rating on SOTL,
as we believe demand for its products, power conductors and optical fibre
should remain strong both in India and its main export markets.