Buy Sterlite Ind; target of Rs 138: Angel Broking

“For 3QFY2012, Sterlite Industries (Sterlite) reported consolidated net sales growth of 23.5% yoy. However, subdued performance from the aluminium segment dragged the company’s profitability. Adjusted PAT for the quarter grew by 12.1% yoy. We continue to maintain our Buy rating on the stock.”

“Sterlite’s net sales increased by 23.5% yoy to Rs10,246cr in 3QFY2012, above our estimate of Rs8,798cr. Net sales growth was driven by higher zinc sales volumes from the zinc segment (+36.9% yoy to Rs3,755cr) and the power segment (+346.7% yoy to Rs591cr). EBIT of the copper and power segments grew by 67.8% and 178.3% yoy to Rs326cr and Rs53cr, respectively. However, EBIT of the aluminium segment reported loss of Rs23cr in 3QFY2012 compared to EBIT of Rs119cr in 3QFY2011. As a result, Sterlite’s EBITDA grew by 17.2% yoy to Rs2,318cr. Sterlite’s associate, Vedanta Aluminium also reported loss of Rs893cr in 3QFY2012 (Sterlite’s share of loss – Rs264cr) compared to loss of Rs347cr in 3QFY2011. Other income grew by 83.6% yoy to Rs877cr, significantly above our estimate. Thus, adjusted net profit grew by 12.1% yoy to Rs1,260cr, above our estimate of Rs771cr.”

“We expect Sterlite to benefit from the expansion of zinc-lead smelting capacity during FY2012-13. Furthermore, Sterlite’s expansion in the silver-rich Sindesar Khurd mine should result in net profit growth of 16.9% in FY2013. At the CMP, the stock is trading at 2.7x FY2012E and 2.1x FY2013E EV/EBITDA, a significant discount to its five-year historical average of 7.1x. Hence, we maintain our Buy rating on the stock with an SOTP-based target price of Rs138,” says Angel Broking research report. 

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