Hold Sterlite Ind; target of Rs 119: R K Global

“Sterlite standalone revenue grew by 4.6% to Rs45844mn in Q3FY12 (above our estimate of 5.8% to Rs43834mn) compared to Rs43784mn in Q3FY’11 higher volume and TC/Rc rates. The company mined metal and cathode production gone up by 50% Y-o-Y and 6.9% Y-o-Y to 6KT and 84KT respectively due to the higher contribution by Australia mines & Tuticorin Smelter. EBITDA quadrupled to Rs857mn (below our expectation of Rs1800mn) in Q3FY’12 compared to Rs270mn in Q3FY’11 due to improved TC/RC and INR depreciation. EBITDA would be further improved if the cost of production would not have been doubled to 2.4 c/lb in this quarter. (1.2c/lb in Q3FY’11). The company improved on the margin front from phosphoric acid sales However, the company PAT declined by ~10% to Rs2843mn during the quarter despite revenue growth and improved operational performance. The declined in PAT was due to the MTM loss on FCCB bond liabilities due to depreciation of INR which resulted in a net exchange loss of Rs720 mn in Q3 after adjusting fair value gain on derivative portion. Sterlite captive power plant project at Tuticorin is progressing well and its first unit of 80MW is schedule to be commissioned in next quarter (Q4FY’12).”

“Sterlite consolidated revenue grew at 23.5% at Rs102460mn in Q3FY’12 compared to Rs82940mn in Q3FY’11. Operation performance too improved reflected in EBITDA growth of 17.2% at Rs23180mn in Q3FY’12 compared to Rs19790mn in Q3FY’11. However, NPAT fell 4% to Rs16430mn during the quarter compared to Rs17110mn in Q3FY’12.”

“At CMP of Rs111, the stock is trading at P/Ex of 25.3on its FY13 EPS Rs4.40/share. We continue to maintain our target price at Rs119/share considering the deep correction in the metal prices. We have seen huge correction in the stock but our valuation is still looking attractive. We expect the stock is likely to get support from its zinc and energy business which will cap the downside risk for the stock. We revised our valuation for SIIL standalone business at Rs34 using EV/EBITDA 4x, HZL at Rs61 using market cap based, BALCO and VAL at Rs20 using EV/Sales 3x and SEL & others at Rs4 using BV/Share. Hence we retain our target price at Rs119 per share and recommend investors to “Hold” the stock as the stock has potential upside of ~7% from the current level,” says R K Global research report.   

FIIs holding more than 30% in Indian cos

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