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Recommendations India

Sesa Sterlite 3QFY2014 performance highlights and results update

April 30, 2014, Wednesday, 10:39 GMT | 05:39 EST | 14:09 IST | 16:39 SGT
Contributed by Angel Broking

Sesa Sterlite’s 4QFY2014 net profit was below street expectations. We recommend Buy rating on the stock.

Top-line stood at Rs.20,894cr: Actual 4QFY2014 results are not comparable with 4QFY2013 results as the two companies, Sesa Goa and Sterlite Industries were merged during August 2013 to form Sesa Sterlite. The merged company’s 4QFY2014 net sales stood at Rs.20,894cr. Its EBITDA stood at Rs.6,764cr while its adjusted net profit stood at Rs.1,758cr.

Aluminium business update: The company has tapped first metal from the 325ktpa BALCO-III Aluminium smelter in 4QFY2014. It has produced 900tonne of aluminium and is likely to ramp up production once the 1,200MW power plant starts commercial operations.

Mining ban lifted in Goa: During April 2014, the Supreme Court lifted a year-long Iron ore mining ban in Goa while capping the total limit of mining at 20mn tonnes p.a. Sesa Sterlite operated 11mn tonne p.a. mining operation before the ban. The ramp up will however take some time as the leases need to be renewed and fresh clearances need to be obtained before actual production can begin.

Outlook and valuation: We expect Sesa Sterlite to benefit from the expansion of Zinc-Lead smelting capacity during FY2015-16. However, its Aluminium segment’s profitability is to remain under pressure due to lack of backward integration in Bauxite procurement. We value Sterlite at Rs.222, based on the SOTP methodology and recommend Buy rating on the stock.