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Sterlite Industries 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Sterlite Industries (Sterlite) reported disappointing 3QFY2013 results. Both, the top-line as well as the net profit were lower than expected, mainly due to lower-than-expected performance from the Copper segment. We maintain our Neutral rating on the stock.

Top-line growth driven by Aluminium and Power segments: The company’s net sales growth was mainly driven by increase in Aluminium and Zinc segment revenues. Aluminium and Zinc segment revenues grew 3.9% and 11.4% yoy to Rs.832cr and Rs.4,182cr, respectively.

Copper segment profitability disappoints: On the operating front, Sterlite’s EBITDA was flat yoy at Rs.2,327cr; EBITDA margin was at 21.8% (below our estimate of 22.8%) as higher profitability from other segments was offset by lower profitability from Copper and Power segments. Copper segment’s profitability was below our estimate as its EBIT declined 50.8% yoy due to lower Tc/Rc charges and lower by-product realizations. The adjusted net profit increased by 2.7% yoy to Rs.1,254cr, which was below our estimate of Rs.1,524cr.

Balco’s coal block clears another milestone: Balco has received stage-II forest clearance for its coal mine which will result in significant cost savings once it is operational. Sterlite expects to commence production from 1QFY2014 which we feel is being optimistic considering that the land acquisition process and signing of mining lease could potentially delay the production.

Outlook and valuation: We expect Sterlite to benefit from the expansion of Zinc-Lead smelting capacity during FY2013-14 although its Aluminium segment’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 had drastically cut Sesa Goa’s iron ore volume estimates for FY2014. We maintain our Neutral rating on the stock.