Hold Sterlite Technologies; target Rs 46: Nirmal Bang

“Sterlite Technologies, revenues grew 39%, YoY to Rs. 707.28 cr. On a QoQ basis revenue grew at 29.2%. Revenue was primarily driven by the power conductor segment due to increased volumes and better realizations of this segment. EBITDA for the quarter stood at Rs. 50.4 crore as compared to Rs. 90.5 cr in Q2FY11, down by 44%. EBITDA margin at 7.13% was significantly lower than compared to Q2FY11, however showed signs of improvement as compared to 5.5% in Q1FY12. This was primarily driven by improvement in the realizations of power conductors. EBITDA per tonne in the conductor segment improved to Rs 6,500 from Rs 2,100 in Q1FY12. However, margins in the telecom business dipped from 23.3% in Q1FY12 to 15.6% in Q2FY12, primarily due to higher fuel & power cost and stabilization issues in the upcoming expansion.”

“PAT for the quarter was Rs. 12.66 cr which was down by 78% on a YoY basis. On a QoQ basis, PAT grew by 142%. PAT margin at 1.79% saw an improvement over the previous quarter. Other income at Rs. 3 cr came down significantly from Rs. 14 cr in the previous quarter. Interest expense at Rs. 21 cr was significantly higher as compared to Rs. 9 cr in Q2FY11. Higher cost of capital will weigh down on company’s profitability in FY12. Order book at the end of Q2FY12 stood at Rs. 2400 cr. Order intake for the quarter was Rs. 700 cr. Of the Rs. 700 cr order intake, Rs. 225 cr orders were from PGCIL.”

“The power conductor business has shown improvement in terms of realizations as well as margins, which is a positive sign. However concerns over the margin in the telecom business have emerged this quarter. We expected the margin pressures to persist in the next quarter and revive in Q4FY12. High interest expense will continue to weigh down on profitability. The company stands to benefit from the recently approved Rs. 20,000 crore broadband plan by the government. In view of fresh concerns emerging out of the telecom segment we revise our FY12E EPS to 3.5 and recommend Hold with a target price of Rs. 46, which is 13x FY12E EPS,” says Nirmal Bang research report.

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