Accumulate Sterlite Ind; target of Rs 115: Angel Broking

“Sterlite Industries’ (Sterlite) 1QFY2013 net profit was higher-than expected mainly due to lower-than-expected tax rate. We recommend Accumulate rating on the stock. For 1QFY2013, Sterlite reported consolidated net sales growth of 7.8% yoy to Rs10,591cr, marginally above our estimate of Rs10,440cr, driven by higher net sales in copper and power segment. Copper and Power segment revenues grew 13.8% and 42.3% yoy to Rs5,125cr and Rs875cr, respectively”

“Despite net sales growth of 7.8% yoy, Sterlite’s EBITDA decreased by 16.3% yoy to Rs2,308cr mainly due to a decline in profitability of aluminium segment. Balco’s aluminium production fell by 1.7% yoy to 60kt, while its revenue increased by 3.0% yoy to Rs780cr. Aluminium cost of production at Balco increased by 16.8% yoy to Rs1,03,542/tonne on account of higher proportion of low-quality bauxite. Sterlite’s associate, Vedanta Aluminium also reported loss of Rs565cr in 1QFY2013 (Sterlite’s share of loss Rs167cr) compared to loss of Rs360cr in 1QFY2012.”

“We expect Sterlite to benefit from the expansion of zinc-lead smelting capacity during FY2013-14. While we expect the aluminium segment’s profitability to remain under pressure, the current stock price factors these concerns. Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, valuation of Sterlite will mirror the valuation of consolidated company, Sesa Sterlite. We value Sterlite at Rs115, based on the SOTP methodology and recommend Accumulate rating on the stock,” says Angel Broking research report.  

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