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Sterlite Industries 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Sterlite Industries (Sterlite)'s 2QFY2013 net profit was higher-than expected mainly due to a better-than-expected performance from its aluminium segment. However, we recommend an Accumulate rating on the stock.

Top-line growth driven by Aluminium and Power segments: For 2QFY2013, net sales increased 8.8% yoy to Rs.11,029cr. The growth in net sales was driven by increases in aluminium, power and zinc segmentsRs. revenues. Aluminium, power and zinc segment revenues grew 25.3%, 46.2% and 8.4% yoy to Rs.859cr, Rs.910cr and Rs.3,870cr, respectively.

Aluminium and Power segments boost profitability: SterliteRs.s EBITDA increased by 5.0% yoy to Rs.2,527cr; the EBITDA margin stood at 22.9% (higher than our estimate mainly due to better-than-expected profitability from the aluminium and power segments). The aluminium segmentRs.s EBIT grew by 106.5% yoy to Rs.43cr and the power segment EBIT grew 260.4% yoy to Rs.190cr. The company reported an exceptional item relating to forex gain of Rs.302cr (including that of its associate Vedanta Aluminium (VAL) compared to a forex loss of Rs.276cr in 2QFY2012. Hence, the adjusted net profit increased 40.1% yoy to Rs.1,441cr, which was above our estimate of Rs.1,299cr.

Outlook and valuation: We expect Sterlite to benefit from the expansion of zinc-lead smelting capacity during FY2013-14 although its aluminium segmentRs.s profitability is expected to remain under pressure. Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, the valuation of Sterlite will mirror the valuation of the consolidated company, Sesa Sterlite. On account of ban on mining in Goa, we have drastically cut Sesa Goa's iron ore volumes for FY2013.