Buy Sterlite Tech; target of Rs 51: KRChoksey

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Buy Sterlite Tech; target of Rs 51: KRChoksey

KRChoksey is bullish on Sterlite Technologies and has recommended buy rating on the stock with a target of Rs 51 in its January 27, 2012 research report.

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KRChoksey is bullish on Sterlite Technologies and has recommended buy rating on the stock with a target of Rs 51 in its January 27, 2012 research report.

"Sterlite Technologies Ltd (STL) Q3FY12 net revenue was below our estimates due to lower volume of conductor segment however EBITDA & net profit were inline with our estimates. Net revenues grew by 14.6% YoY to Rs 663.5cr crore driven by 12.8% YoY growth in power segment and 19.5% growth in telecom segment. EBITDA stood at Rs 52.2cr, a growth of 21.2% YoY. Operating margins marginally improved by 50bps on account of 250 bps margin improvement in power segment. Net profit declined by ~44% YoY due to higher interest expense and depreciation. The company incurred Rs 6.6cr higher interest and depreciation on standalone basis during the quarter due to the impact of merger of Sterlite Infra-Tech Ltd. Order book stood at Rs 2450cr the end of Q3FY12. Management expects new order inflow in System integration business in Q4FY12."

"Realization in the conductors segment during Q3FY12 increased by ~16.2% YoY and ~3.5% QoQ to ~Rs 1, 45,920/ton. However conductor volume disappointed with degrowth of 3% YoY and 10.7% QoQ to 32600MT. EBITDA/ton was Rs ~ Rs 7975, improvement on 250bps YoY and 80bps QoQ was a positive surprise. Management remains confident of achieving Rs 9,000/ton to Rs 10000/ton of EBITDA in conductors segment Q4FY12 onwards. Net revenues grew by 19.5% on YoY basis and showed marginal decline by 2.5% QoQ to Rs 187.8cr. EBITDA margins dipped by 830 bps on YoY and improved 30bps sequentially to 15.9%. Higher power and oil cost and stabilization issue put pressure on volume as well as margins. System integration reported revenue of Rs 32cr. Order book stood at Rs 250 crore. On the standalone basis interest and depreciation costs were higher by Rs 6.6cr during the quarter due to the impact of merger of Sterlite Infra-Tech Ltd. The management guided Rs 2.2cr increase in interest and depreciation in Q4FY12E. We believe increase in debt raised for funding of expansion plans would be a spoilsport going ahead."

"Higher sales volumes lead by new plant stabilization, improvement in margins on the back of high margin order execution, and improvement in order flow would be the key triggers. Sterlite technology is trading at 9.8x and 7.8x PE to FY12E and FY13E. We believe it is available at an attractive valuation and will give handsome returns over 12 months time period. We maintain our BUY recommendation on the stock with a target price of Rs 51, valuing at 10x PER FY13E EPS," says KRChoksey research report.

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