Hold Sterlite Tech; target of Rs 48: Nirmal Bang

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Hold Sterlite Tech; target of Rs 48: Nirmal Bang

Nirmal Bang has recommended hold rating on Sterlite Technologies with a target of Rs 48, in its February 2, 2012 research report.

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Nirmal Bang has recommended hold rating on Sterlite Technologies with a target of Rs 48, in its February 2, 2012 research report.

"Sterlite Technologies Ltd (STL) reported lower than expected numbers as its operational efficiencies continue to remain under pressure. The bottomline was a drag due to higher interest cost and depreciation.  Revenues for the quarter stood at Rs. 663.5 cr, up 14.5% on a YoY basis. Sales from the Power Transmission business were up by 13%, YoY whereas sales from the Telecom business were up by 19%, YoY on the back of strong volumes in the telecom business. Volumes from the power conductor business (32600 MT) were lower on QoQ and YoY basis.  EBITDA for the quarter was Rs. 52.2 cr, up 21.2%, YoY and 3.6%, QoQ."

"EBITDA margin continues to remain under pressure and came in at 7.8% for the quarter. This is primarily due to lower margins in the telecom business as the capacity expansion continues to face cost overruns and stabilization issues. EBITDA/tonne for the power conductor business showed signs of improvement on QoQ basis. (7900/tonne as compared to 6400/tonne).  PAT for the quarter was Rs. 9.5cr, down by 43%, YoY and 25%, QoQ. PAT margin suffered as a result and came in at 1.4% for the quarter. This was primarily due to higher interest costs (up 80%, YoY) due to high debt and higher depreciation costs (up 42%, YoY) due to the merger of its subsidiary (Sterlite Infratech) with itself. Order book for the quarter stands at Rs 2400 cr and STL received orders worth Rs. 680 cr for the quarter. PGCIL is expected to come out with tenders for 150000 MT of conductors in Q4FY12 which is expected to result in better order booking for the power conductor business."

"Concerns on the profitability continue as the telecom business faces pressure due to cost over runs and plant stabilization issues for its capacity expansion. Power Conductors business shows slight improvement in margins but is still significantly lower than its historical levels. The volumes in the power conductor business are expected to be better in the coming quarters. We have revised our FY12 estimates in view of current results and the management commentary and introduced FY13 estimates. We value STL at 12x its FY13E EPS of 4.03 for a target price of Rs. 48 and maintain our Hold rating," says Nirmal Bang research report. 

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To read the full report click on the attachment